Australian company Envirosuite (ASX: EVS) will use a “potentially transformative” agreement with one of China’s most prominent figures in the environmental protection sector as a launching pad for its entry into that nation’s mass market.
The company has signed a binding agreement with Chinese investor and businessman Zhigang Zhang to secure a “strategically-funded and effective” entry into the China market via the establishment of wholly-owned subsidiaries in the coming weeks.
Envirosuite has long sought entry into China, which it considers to be the world’s largest market for its environmental management technology solutions.
The agreement will see 50 million shares placed with Mr Zhang’s investing entity, ZZL Pty Ltd, at 8 cents per share to raise $10 million across two equal tranches.
The first tranche will be completed this month with the second due by the end of October, subject to shareholder approval.
Mr Zhang will also receive 25 million unlisted options exercisable at 15 cents per share (expiring March 2022) and will be offered a position on the Envirosuite board.
The options will vest on a minimum of $10 million in cumulative revenues being generated by the new subsidiary until December 2021.
The figure has been nominated as a minimum performance hurdle which must be achieved to allow ZZL Pty Ltd, Mr Zhang’s nominee investors and the future Envirosuite China team members to exercise their options.
Accelerated entry
Envirosuite chief executive officer Peter White said the agreement would deliver an accelerated entry toward the achievement of critical mass in the China market and lay the foundations to support a sustained growth rate over the long-term.
“With the access provided by Mr Zhang and his team, we believe the China market will serve as an innovative launching pad to deploy and demonstrate the commercial and technical appeal of our expanded industry solutions that can then be implemented as mature and market-proven solutions in other countries,” he said.
Industry profile
Mr Zhang has a credible business profile, having worked in the water remediation and environmental protection industry in China and internationally for over 30 years.
He has held senior management positions at a number of high-profile companies including China Water Holdings Limited and since 2014, has held the role of general manager at Beijing’s BHZQ Environmental Engineering Technologies Co Ltd.
In 2017, Mr Zhang was appointed a non-executive director of Phoslock Environmental Technologies (ASX: PET).
Public policy
Environmental concerns are currently among the highest-priority public policy matters in China.
In 2017, the government announced the 10-year “Beautiful China” environmental improvement plan, designed to clean up toxic air and polluted water and soil across the country and driven by technological innovation.
Mr White said Envirosuite is well-positioned to provide solutions in the policy’s focus areas of waste and wastewater, mining and “smart cities”.
“China is embracing new technologies and with 1.4 billion people, it is a massive market [for us],” he said.
“We are delighted to have secured the commercial and investment support of [Mr Zhang] to achieve the best possible starting point and growth outlook for our China story.”
Mr White said the focus will now be on establishing the Chinese subsidiaries and engaging local team members in the lead-up to securing initial contracts.
