Clean Energy: Peering Down China's IPO Pipeline
Clean Energy: Peering Down China's IPO Pipeline
By Catherine Lacoursiere February 22, 2006
The Chinese IPO boom appears to be building on strong momentum.
Reuters reports that 42 percent of Chinese companies are
planning stock issues and over 50 have received approval and
plan to go public in 2006. This is good news for clean energy.
While investors have devoured shares of Chinese solar gear maker
Suntech Power Holdings (NYSE: STP), clean technology IPOs out of
China have been sparse.
It is easy to see the attraction to China cleantech.
Domestically, renewable energy consumption is growing in excess
of 25 percent. Globally, companies like Suntech Power, which
exports 90 percent of its production, are enjoying an export
boom. Chinese exports are growing at close to 30 percent a year.
Investors will soon see their growing appetite for China new
energy satiated. Recent changes in China's capital markets will
make it easier for Chinese companies to gain access to
financing, both at home and abroad. Up until 2002, the process
for a Chinese company to issue an IPO was difficult and required
the approval of the China Securities Regulatory Commission
(CSRC). Additionally, last year, China halted domestic IPO
issuance amidst growing concerns over corporate governance
practices. The move also provided a more captive market for the
floatation of over $200 billion in shares of Chinese privatized,
state-owned companies.
As a result, global exchanges have witnessed an invasion of
Chinese IPOs. In 2005, 80 percent of all IPOs on the Hong Kong
Stock Exchange were Chinese H-shares. Following Suntech, the New
York Stock Exchange now hosts 25 Chinese companies. Last week,
China announced that it is making it easier for small and
medium-sized technology enterprises to gain access to domestic
capital. Measures to be taken include easing restrictions on the
IPO registration process and allowing SMEs to issue bonds. And
plans are in the works for a separate stock exchange for smaller
companies, similar to London's Alternative Investment Market
(AIM).
Don Ye, Director of the Beijing-based China Environment Fund,
the leading sustainable investment fund in China, emphasizes
that many of the Chinese companies receiving positive receptions
on foreign exchanges have a large foreign export base. China
benefits from a manufacturing advantage that includes both lower
costs and human capital, "Chinese talent," says Ye. The China
Environment Fund's second fund, which closed in November, is
focusing on renewable energy and energy efficiency technologies.
Investor preference for concrete sales abroad also reflects the
murky accounting that was a characteristic of the last Chinese
IPO boom in 2001. One such practice involved shell companies
acquiring privatized state assets and prepping the new company
for sale. Moreover, according to Reuters, Chinese valuations are
more in line with expectations today, dropping to 20 times
earnings from 60 in 2001.
Going forward, CEF's Ye expects to see more solar issues as
clean technology IPO issues from China pickup. "One reason the
solar PV market is going well is because the government has
given it lots of subsidies." Chinese wind technology, such as
advanced blades, is another market benefiting from subsidies and
expected to "quickly" pick up over the next couple of years. In
addition to large export opportunities, demand in the domestic
market is increasing as GDP growth continues to outpace the rest
of the world. So far, one CEF portfolio company, Dongjiang
Environmental (HKSE: 8230), a hazardous waste company that
recovers metals from electronic waste, has gone public. Net
profits of China's leading hazardous waste company are
increasing at a CAGR of 18 percent a year, according to First
Shanghai Securities.
Investors also will follow the momentum--solar plays in the US
market and water purification in Singapore, for instance. With
hundreds of Chinese cities facing water shortages, Asian
companies with wastewater treatment technology have been
flooding the market with IPOs in recent years, particularly the
Singapore Exchange due to its higher price-to-earnings ratios.
Hyflux (SGX: HYFL.SI), a leading Asian maker of water
purification and treatment systems, was the first company to
list on the Singapore Stock Exchange in 2001. More recently, the
issue of Asia Water Technology, a Chinese water treatment
company now headquartered in Singapore, was almost eight times
oversubscribed.
As China lifts its 10-month moratorium on domestic IPOs,
however, foreign exchanges will not only have to compete harder
for China's new issues but also domestic IPOs if China follows
through with its intention to launch Chinese depositary receipts
(CDRs). Either way, with plans to also open the floodgates to
more foreign institutional investors, there will be more
investment pipelines to China's clean technologies.
Disclaimer
Catherine Lacoursiere is an independent columnist for this web
site. Catherine Lacoursiere may hold long or short positions in
any of the stocks mentioned in this article and those positions
can change at any moment.
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