Đức Giang Chemicals Group JSC (DGC) recently disclosed its pursuit of potential merger and acquisition (M&A) deals to boost yellow phosphorus production.

 

DGC has plans to merge with Vietnam Apatite – Phosphorus Joint Stock Company (PAT) within this year. By the end of 2023, DGC already holds 100 per cent of the charter capital in Đức Giang-Lào Cai Chemicals JSC, which in turn possesses a 51 per cent stake in PAT.

 

This effectively establishes DGC's dominance over PAT through its subsidiary.

 

To facilitate the merger of PAT into DGC in the near future, DGC aims to increase its ownership stake in the company beyond the current 51 per cent level.

 

PAT operates a yellow phosphorus plant with a design capacity of 20,000 tonnes per year, while DGC and its subsidiaries have a combined capacity of 70,000 tonnes per year.

 

In 2023, PAT recorded a net revenue of VNĐ1.7 trillion (US$68.5 million) and a net profit of VNĐ286 billion, marking a decline of 46 per cent and 70 per cent respectively compared to 2022. These figures accounted for 9 per cent of DGC's consolidated net profit.

 

Given the Government's cessation of issuing licences for new yellow phosphorus plants, increasing the ownership stake in PAT will aid DGC in improving its profitability.

 

This M&A deal will enable DGC to streamline internal costs and align with its strategy of expanding downstream operations to achieve higher added value. It will maximise the utilisation of internal yellow phosphorus supply and reduce reliance on raw material exports.

 

DGC has applied for a modification of its mining licence and a five-year extension, considering the larger-than-expected reserves.

 

Yellow phosphorus and related product prices faced significant downward pressure in most of 2023 due to weakened global semiconductor, fertiliser, and other industrial production activities.

 

SSI Securities Corporation's research unit (SSI Research) projects a 12 per cent price increase for yellow phosphorus this year compared to 2023, reaching VNĐ118 million per tonne. This growth is primarily driven by the recovery in the semiconductor industry, while the demand for fertilisers remains sluggish. Currently, DGC's yellow phosphorus production facilities are operating at full capacity.

 

Over the next three to five years, although yellow phosphorus prices may not reach the peak of 2022, SSI Research estimates that DGC's profit potential could surpass VNĐ6 trillion, equivalent to the 2022 peak.

 

This optimistic outlook is attributed to the increased yellow phosphorus production capacity resulting from the new M&A deal and the expansion of downstream production of yellow phosphorus-derived products such as LCD phosphoric acid, which yields higher profit margins.

 

It is noteworthy that DGC's business activities hold strong growth potential, particularly due to its successful production and trading of lithium iron phosphate (LFP) batteries. DGC has already sent LFP battery samples to potential customers in South Korea, Japan and the European Union (EU).

 

LFP batteries represent a new generation of batteries and play a pivotal role in the development of electric vehicles. Currently, 90 per cent of LFP battery production capacity is concentrated in China. — VNS