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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.
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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.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
Catherine Lacoursiere is a freelance writer. Nothing in the articles should
be construed as an offer or solicitation or recommendation to buy or sell
any specific products or securities. Past performance does not guarantee
future results.
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