(Yicai) July 13 -- Shares of Shandong Rike Chemical surged by the exchange-imposed daily trading limit after the Chinese producer of plastic and rubber modification additives said it will foray into the lithium battery electrolyte additive segment by acquiring a controlling stake in a leading supplier.

Rike [SHE: 300214] jumped 20 percent to CNY12.30 (USD1.81) in Shenzhen today, after a 10-trading-day suspension to prepare for the asset acquisition. The ChiNext Index fell 3.1 percent today, down a total of 8.38 percent during the 10 days trading suspension of Rike.

Rike will buy a 71 percent stake in Shandong Genyuan New Materials from 27 shareholders, the company announced on July 10. While the transaction value has yet to be determined through an upcoming audit and asset appraisal, the acquisition is expected to result in a major asset restructuring.

The firm plans to pay for the stake in Genyuan New Materials in cash and through a private placement of shares at a fixed price of CNY7.50 (USD1.10) apiece, an about 27 percent discount on its closing price of CNY10.25 on June 26.

The deal will optimize Rike’s layout in strategic emerging industries, boost its risk resistance, and improve its sustainable development capacity, the firm noted, adding that it will also leverage Genyuan New Materials’ customer resources from the new energy vehicle industrial chain to explore applications in new markets for its existing products.

Genyuan New Materials is a supplier of lithium battery electrolyte additives and a leading producer of vinylene carbonate and fluoroethylene carbonate, two of the core additives. It has strategic cooperation ties with major downstream industrial clients, including Contemporary Amperex Technology and BYD.

Genyuan New Materials has five natural-person shareholders and 22 corporate shareholders. CATL is its second-largest shareholder, with an 11 percent stake, and BYD is the eighth-largest, with a 3.4 percent stake.

The target company posted an operating revenue of CNY965 million (USD142.3 million) and a net profit of CNY134 million in the first quarter of this year, after reporting net losses in the past two years, according to data disclosed by Rike.

Genyuan New Materials’ unique 30,000-ton continuous VC production line was put into operation in April. With multiple new capacity projects expected to be operational this year, the firm’s total annual VC capacity is expected to reach 120,000 tons by the end of this year, further strengthening its leading global position in this niche segment.

VC is a vital additive for lithium battery electrolytes, as it improves battery cycle performance and safety. It is mainly used in electrolytes for lithium iron phosphate batteries. FEC slows down the performance attenuation of high-energy-density batteries. It is primarily applied to electrolytes for ternary lithium batteries.

Surging demand for power batteries and energy storage equipment has fueled robust market demand for all core battery chemical materials. To guarantee a stable supply of VC, CATL signed a three-year long-term procurement contract with Yongtai Technology, another industry leader, for a total of 90,000 tons of VC last month.

Editor: Futura Costaglione