Taking Stock of China : International trade: A local finance specialist is helping a Chinese plastic-container maker raise capital, with an eye to expansion into U.S. markets.
A government-controlled plastic-container maker in Mainland China has teamed with a freewheeling finance specialist from Orange County in an unusual deal aimed at making the Chinese business a publicly traded company in the United States.
Irvine-based Garte Torre Capital Markets hopes to raise $5.5 million for Guangzhou Plastics, a maker of containers and films, to enable it buy new equipment and expand into the North American market. Eventually, the company stock would be traded on the Nasdaq market.
And while it still is unusual for Chinese companies to come courting in the U.S. stock market, trade specialists say they expect deals like Garte Torre’s to become more common as China continues unfettering its businesses and they reach out for growth capital.
The deal underscores how Orange County, like many other West Coast business regions that are close to seaports and air freight centers, has become an important player in international trade, especially on the Pacific Rim.
Indeed, foreign trade services including financing, export and import management, and product marketing have been steady growth industries in the county all through the recession--one of the bright spots in an otherwise dreary employment arena.
“We have quite a bit of experience in Orange County in using venture capital and raising money for emerging companies, so this just might be the kind of thing we can build on,” said Esmael Adibi, director of the Chapman University Center for Economic Research.
Dennis Aigner, dean of the UC Irvine Graduate School of Management and a foreign trade specialist, said the county has a remarkably large proportion of service firms that are engaged in international trade.
And growth is the order of the day.
In UCI’s recently published annual survey of county businesses, firms involved in foreign trade said they expected to increase employment by an average of 3.5% this year, compared with an overall job growth rate of just 1%, Aigner said.
The situation is much the same in Los Angeles County, where international trade “never slowed much all through the economic turmoil, and started sprinting like a racehorse in 1994,” said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles.
Last year, the Los Angeles Customs District replaced New York as the biggest international trade center in the nation. The value of goods shipped through the district--which takes in the ports of Long Beach, Los Angeles and Port Hueneme as well as Los Angeles International Airport and McCarran Field in Las Vegas--rose 13.5% to $145.9 billion.
Hard goods--from airplanes and electronic equipment to chemicals and scrap steel--are staples of Los Angeles’ foreign trade industry, but the region’s service industries are increasing their role as well. The foreign market for entertainment, for engineering and architectural services and for business services involved in financing and marketing trade goods is “just tremendous,” Kyser said.
Garte Torre is doing its part.
The company has grown into a three-branch operation with eight employees, including founders Harvey Garte and Richard Torre, since the two business finance specialists founded the business a scant four months ago.
Aigner says Orange County’s location supports a significant foreign trade service industry because it is central to Southern California’s major distribution channels--including the ports of Los Angeles and Long Beach--and provides easy access to the Pacific Rim.
Torre, a transplanted New Yorker who came here in 1976, agrees, adding that the opportunities to be found in the county’s rich pool of entrepreneurial businesses are also a drawing factor.
A former corporate turnaround and foreign trade finance specialist, Torre met mergers and acquisitions consultant Garte late in 1994 when both men were looking for new things to do. The exuberant Torre and low-key Garte hit it off and decided to team up.
In addition to Garte Torre, key players in the move to take the plastics company public are Guangzhou Plastics, a state-owned manufacturer in China’s Guangzhou Province free enterprise zone, and Hong Kong-based investment firm Rodman Enterprises Ltd.
But stock offerings, especially those crossing international borders, don’t get done without a lot of specialized help. The cast of characters also includes Rodman’s Hong Kong law firm, a Los Angeles legal firm, a Pasadena financial public relations company and a pair of Orange County businesses, Houlihan Valuation Advisers in Costa Mesa and Beta Capital in Newport Beach.
Garte Torre’s role is much like that of a general contractor in a big construction project: to help the client decide the scope of the work to be done and then assemble the subcontractors who perform the specific tasks, and to oversee it all and serve as liaison among the various players.
The company brought Houlihan and Beta into the deal--the two firms are part of a corps of trade and finance professionals that Garte and Torre have worked with in the past and draw from whenever clients don’t have their own advisers on call. Houlihan was retained to establish a U.S. market value for the Chinese plastics business--Richard Houlihan is in China this week to survey the company and its facilities--while Beta’s owner, investment broker Steve Antry, is guaranteeing sale of the stock to a group of investors.
Torre said Guangzhou Plastics hopes to raise $5.5 million through a public offering in the fall.
Guangzhou “wants to gain entry to the North American market for the capital, the exposure to the world’s best plastics manufacturing technology and because they hope to begin purchasing reprocessed plastic waste in the U.S. and shipping it back to China” to be used in manufacturing containers, Torre said.
Additionally, Guangzhou--which in 1993 had a $2.1-million profit on sales of $44 million worth of manufactured plastic goods in China, mostly containers and plastic film--would like to increase production and begin selling in the U.S. “The intention is that about 20% of the plant’s output will go to the North American market,” Torre said.
And those trade goods will most likely enter the U.S. through the side-by-side ports of Los Angeles and Long Beach, which last year ranked as the nation’s busiest commercial seaport area. From there they would be taken by train or truck either to warehouse and distribution centers or directly to the retail or wholesale customer, a chain that creates a number of jobs along the way.
Foreign businesses like raising capital in the U.S. “because we have the largest capital pool in the world and because the markets here are extremely liquid, which gives the (stock) issuer greater access to capital because it lets investors buy and sell so easily,” Nasdaq spokesman Spellman said.
In 1993, the value of stocks listed on the various U.S. exchanges was almost $5.2 trillion, or 37% of the worldwide equity market, said George Monahan, director of statistical information for the Securities Industry Assn. in New York. Japan was second with 21% and the United Kingdom was a distant third with 8% of the world’s stock value, he said.
Garte Torre isn’t concentrating on foreign trade. Current deals, which include representing six businesses that are looking for buyers, four that are looking for lenders and three--including Guangzhou--planning public stock offerings, are almost all domestic.
Still, it is hard to stay away from international business when Southern California is your main stomping ground, Torre admits. Two of the company’s Los Angeles jobs involve work for clients whose businesses include operations in Hong Kong and Mainland China.
