Qilian Picks up U.S. IPO Efforts After Covid Impact

author: CapitalWatch Staff   

Qilian International Holding Group Ltd. has picked up its halted IPO efforts and filed to raise up to $35 million in New York.

The seller of traditional Chinese medicine products hopes to list under the ticker symbol "QLI" on the Nasdaq or the NYSE American. It offers 5 million ordinary shares at a price of $5 to $7 per share.

Qilian describes itself as a "pharmaceutical and chemical company" that makes "licorice products, oxytetracycline products, traditional Chinese medicine derivatives (TCMD) product, heparin product, sausage casings, and fertilizers."

In addition to playing on the growth of its self-developed products and the geographical expansion to more cities in China, Qilian hopes to get a boost from the government. In its filing, it cites the "Zero Growth of Chemical Fertilizer and Pesticide Use by 2020" as an incentive that would help it build an organic waste treatment facility to increase fertilizer production. It also seeks to expand manufacturing facilities for heparin products, it said.

Qilian Looks for $10 Million More Than Required 

Nasdaq's new rules will require companies from some countries, including China, to raise $25 million in their IPO or, alternatively, at least a quarter of their post-listing market capitalization. Out of 155 Chinese companies that listed on Nasdaq since 2000, 40 grossed IPO proceeds below $25 million, according to Refinitiv data.

Qilian By the Numbers 

For the half-year through March 2020, Qilian reported revenues grew 2% year-over-year to $27.8 million. Net income declined to $3.9 million from $4.3 million in the six months through March 2019, according to the prospectus.

The company said it intends to use the IPO capital for "production capacities expansion, marketing purposes, and acquisition of upstream and downstream companies manufacturing traditional Chinese medicine pieces."

Qilian has hired Univest Securities, LLC and Loop Capital Markets as the underwriters on its IPO.

Qilian first publicly filed for a U.S. IPO in November 2019. Apparently, the Covid-19 outbreak has halted its run-up to a listing. 

In its updated prospectus, Qilian wrote about the impact of the epidemic, "We have experienced substantive diminutions in raw material supplies due to the COVID-19 outbreak and ensuing lockdowns, and for the nine months ended June 30, 2020, the price of these raw materials has increased by approximately 4%-8% as compared to that of the same period of last fiscal year."

Further, "Our sales for the nine months ended June 30, 2020, decreased by approximately 10% as compared to that of the same period in 2019, due to the combined effect of the decreased demand of our licorice and TCMD products, and substantive drop in oxytetracycline products prices in April and May 2020. Due to certain Chinese government's mandate during the COVID-19 outbreak, the general Chinese public was encouraged to receive examinations and treatments in hospitals instead of resorting to over the counter medicines, which include our licorice and TCMD products. Further, the substantive decrease in the market price of our oxytetracycline products was caused by border controls and closures in foreign countries, which resulted in general excess supplies of oxytetracycline products."

Qilian Follows Universe Pharma 

Qilian's updated filing now closely follows the launch of a listing process by a peer, Universe Pharmaceuticals Inc., which also seeks to raise $35 million. The coverage by CapitalWatch of Universe's filing walks through the trading curves of U.S.-listed TCM sellers, neither of which have seen much success in U.S. trading.

With a more diverse product offering, Qilian might attract more investor interest in the West than its peers in the TCM market have thus far. Recent optimism surrounding a possible Sino-American trade war detente might bode well for the company.