Cleantech IPOs sweat but private equity could come up trumps

The cleantech business must be worrying what the news of Haitong Securities pulling its USD1.7 billion Hong Kong initial public offering (IPO) on the grounds of poor market conditions, will do to their prospects.

Guodian Technology and Environment Group, a maker of wind equipment, will price its IPO on Wednesday, expecting to aim to raise about USD643 million. Later this week windfarm developer Beijing Jingneng Clean Energy is expected to price its IPO at around USD300 million.

Both companies are facing stock markets that are scaring off the experts (Haitong is one of China's largest brokerages). Indeed Asia's IPO record for the past year has been fairly dismal. Data from Thomson Reuters shows its value halved from a year before, to USD72.4 billion.

And the markets must be jittery since the Haitong deal was backed by what Hong Kong uniquely know as cornerstone investors. These investors, big institutions or Asian tycoons (Li Ka Shing made a lot of money this way), gets shares before asset managers get a look in. It generally boosts interest in the IPO. They very rarely pull IPOs and this one was backed by global private equity firm Warburg Pincus.

As bad as that sounds, it gets worse since the cleantech sector is even under-performing the cross-board indices. The Thomson Reuters Asia Pacific Renewable Energy Index dropped 50 percent this year while the new China CleanTech Index has similarly seen a 43.2 percent fall over twelve months, dominated by the solar sector.

As if to underline how dire things now are, a report in the Chinese newspaper Guangzhou Daily and as cited by Digitimes is claiming that up to half of China’s PV manufacturing firms have ceased production, blaming demand slumps and price drops. But one should also view the obscure report through the prism of the on-going trade dispute with the US.

The fact is, however, that there are encouraging developments for the cleantech sector and the IPO market with intrepid long-term investors seeing opportunities. Companies coming to market in Hong Kong have been offering better value than other Asian counterparts. The forward price-to-earnings ratio for companies listed on the Hang Seng Index are below other Asian markets, hovering under 10.

Another development is the increasing role of the private equity sector. Just as Warburg Pincus supported Haitong's abortive attempt, other PE firms have been viewing IPOs as a new investment stream.

As far back as September it had become apparent that private equity companies were sniffing around Chinese IPOs. Reuters has been highlighting deals by Bain Capital, Blackstone, Kohlberg Kravis Roberts (KKR) and Permira in pre-IPO financing, providing capital to fast growing companies prior to IPO.

Now they're looking elsewhere. KKR, MBK Partners and others had committed some USD550 million as cornerstone investors to six IPOs in Hong Kong, although the Haitong deal will affect this. And this includes the latest cleantech offerings of Guodian and Beijing Jingneng Clean Energy.

According to a report from IFR Markets, there are five cornerstone investors in Guodian's float, including SAIF Partners and China High Speed Transmission Equipment Group. Other investors include State Grid Corp of China, China Datang Corp Renewable Power Co Ltd and China Huadian Corp.