Green Grass Ecological Seeks $23 Million In U.S. IPO

Green Grass Ecological Technology Development Co. (QQCY) intends to raise $23 million in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm performs specialty farming of alfalfa and related agriculture harvesting for biomass and other purposes.

QQCY has intriguing market dynamics in its favor. When we learn more details about the IPO, I’ll provide an update.

Huhe Haote City, Inner Mongolia-based Green Grass was founded to grow alfalfa for livestock feed and sell biomass waste products (corn and wheat straw) to power generation plants and paper mills.

Management is headed by Chairman and CEO Mr. Jian Sun, who has been with the firm since May 2019 and was previously president of Inner Mongolia Green Grass Yuan Ecological Technology Development.

Below is a brief overview video of Mongolia’s alfalfa farming operations (in Spanish):

Source: China Xinhua Espanol

The firm has signed cooperative agreements with the Guoneng Biomass Power Generation Group and three other biomass power plants in Guoneng.

Management seeks to expand its specialty alfalfa farming business and other products for biomass purposes, as it sees a shortfall in supply compared to the demand for its products in China.

Green Grass has received at least $13 million from investors including JIAN Grasslands Holdings (Chairman and CEO controlled), Liling Grasslands Holdings, Lihua Grasslands Holdings, Xianho Grasslands Holdings, Jinyi Grasslands Holdings and XIAO Grasslands Holdings.

The firm sells its products to livestock operators and to large power plants using a direct sales approach.

Green Grass’ service team ‘provides inter-state services for an operating radius of more than 2,000 kilometers in Mongolia and in surrounding provinces.’

Selling, G&A expenses as a percentage of total revenue have dropped as revenues have fluctuated.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, swung to negative (0.9x) in the most recent reporting period.

According to a 2020 market research report, the global market for alfalfa hay is expected to be worth $29.3 billion by the end of 2020 and grow to $29.5 billion by the end of 2026.

This represents a forecast CAGR of only 0.1% from 2021 to 2026.

The United States accounted for 51.7% of global production in 2016 and was the world’s largest exporter of alfalfa hay in that year.

Also, China imports much of its alfalfa from the United States, but no doubt seeks to reduce that dependency with increasing purchases from nearshore operators such as Green Grass and others.

Major competitive or other industry participants include:

  • Huishan Diary
  • Qiushi Grass Industry
  • Beijing HDR Trading
  • Beijing Lvtianyuan Ecological Farm
  • Modern Grassland
  • Inner Mongolia Dachen Agriculture
  • Inner Mongolia HuangYangwa Grass Industry

Green Grass’s recent financial results can be summarized as follows:

  • Contracting topline revenue
  • Reduced gross profit and fluctuating gross margin
  • Increased operating profit and uneven operating margin
  • Decreased cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Source: Company registration statement

As of December 31, 2019, Green Grass had $17,600 in cash and $1.7 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2019, was $2.9 million.

Green Grass intends to raise $23 million in gross proceeds from an IPO of its ordinary shares, although the final figure may vary..

Management says it will use the net proceeds from the IPO as follows:

to increase our production and storage capacity of biomass straw business
for improvement of filer and dust collection equipment and system;
and for general corporate purposes.

Management’s presentation of the company roadshow is not available.

There are no listed bookrunners of the IPO.


Green Grass is seeking U.S public capital market investment to fund its expansion plans for its alfalfa hay product business, primarily in the biomass raw materials industry.

The company’s financials indicate the firm has been negatively impacted by the Covid-19 pandemic but is back to full operations after a few month closure during 1H 2020.

Accordingly, its Selling, G&A expenses as a percentage of total revenue has fluctuated; its Selling, G&A efficiency rate has swung to slightly negative territory as revenue has declined in 2020.

The market opportunity for providing raw biomass straw products is large, especially as China appears to have a strong desire to reduce its importing of U.S. straw and source the products closer to home, so the firm has positive industry dynamics in its favor.

Like many Chinese firms seeking to tap U.S. markets, the firm operates within a VIE structure or Variable Interest Entity. U.S. investors would only have an interest in an offshore firm with contractual rights to the firm’s operational results but would not own the underlying assets.

This is a legal gray area that brings the risk of management changing the terms of the contractual agreement or the Chinese government altering the legality of such arrangements. Prospective investors in the IPO would need to factor in this important structural uncertainty.

There is no disclosed underwriter as of the most current filing.

When we learn more IPO pricing and valuation details, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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