2011 Set to be Even Hotter for Chinese Cleantech IPOs
Even with a great 2010 in the books, analysts say investors shouldn’t expect the growing boom in Chinese cleantech firms going public to slow down in the coming months.
“It’s impossible to overstate the dominance of China in later-stage cleantech capital markets,” says Sheeraz Haji, CEO of research firm The Cleantech Group. “We expect the strength of Chinese IPOs to continue in 2011 and beyond.”
It’s been several red-hot months recently for new issuance of Chinese green technology companies.
Haji says his firm’s data shows that China accounted for more than two-thirds of all cleantech IPOs in 2010 - 63 out of 93 launches globally, including 8 of the 10 biggest IPOs.
That adds up to almost $10 billion of the total $16.3 billion raised in cleantech IPOs in 2010, a 60 percent market share that’s up from 10 percent in 2007.
Gil Forer, global cleantech leader at advisory firm Ernst & Young, points out that just this past December saw several IPOs and he adds there’s “no reason to think this trend is going to stop.”
He says Chinese wind and solar energy firms led the way last year, including a $917 million launch from wind energy component-maker China Goldwind and a $360 million launch from solar module firm Chaori Solar, both in 4Q10.
With aggressive renewable energy production targets put in place by Beijing, he says he expects more wind energy manufacturers and renewable energy project developers to top the list of IPOs this year, too.
“The IPO demand in China is robust,” Forer says, adding that new solar-related equities could be few this year, since many of the dominant technology firms in that space have already come to market.
Cleantech Group’s Haji says his firm also expects that companies on the demand side of the energy equation — like smart grid technologies, energy efficiency concepts, and green transportation — to play “a big role in the coming years” in the cleantech IPO market.
Forer agrees, citing the battery, electric vehicles and LED lighting segments as ones to watch in the longer term.
But it was the clean energy suppliers kicking off the green IPO parade for 2011 in style, with Chinese wind turbine-maker Sinovel raising $1.4 billion in its debut last week.
Despite dropping 10 percent in its second day of trading on concerns of initial overpricing, investors are still bullish on the firm over the long haul.
“We like this company for several reasons,” says Garvin Jabusch, chief investment officer with Green Alpha Advisors of Boulder, Colorado. “And chiefly we like it for those reasons that could apply to many Chinese cleantech companies — huge and thus far unwavering (sector) support from Beijing.”
Jabusch also applauds Sinovel’s creative management style, citing their 6-megawat turbine design that makes them “one of the leaders in the more efficient and powerful direct-drive turbines.”
Competing wind turbine technologies are typically less than 5 megawatts.
Haji pins the success of the Chinese cleantech market to date on strong company fundamentals and an “abundance of capital,” with strong government support providing a solid framework.
“China’s cleantech markets are large and growing rapidly. This enables young firms to grow quickly and achieve profitability,” he says.
Many market participants point out it’s the massive scale of the Chinese government’s support for the cleantech sector that’s driving investor interest.
“China is investing $1.5 trillion into cleantech over just the next five years,” he says, adding that the US government is investing about 10 percent of that amount, and that could be trimmed by deficit hawks in Congress.
He says boosting demand means “China will lead in every step of the process, from education, to idea, to seed, to successful private firm, to IPO — count on it.”
Last September, Chinese Premier Wen Jiabao announced seven emerging priority industries that were crucial for the country’s development - from new clean energy technologies and electric vehicles, to new materials and biotech.
The GDP share of these seven industries was 2 percent in 2010, with a goal to make them 15 percent of GDP by 2020.
Four of the seven sector are “under the cleantech umbrella,” says Ernst & Young’s Forer.
“Some will call all these advantages unfair - the grants, the arguably protectionist policies, the preferential tax treatment, the keeping of rare earth elements for domestic users, the inexpensive means of production,” says Jabusch.
But he adds that he expects China to continue to do “whatever it takes” to drive domestic growth and he says he sees cleantech as a “major component” of that growth. “They won't back down from (controversial policies) any more than the US will back down from its agricultural subsidies,” he says.
Various countries’ national investments in cleantech can be seen as evidence of a simpler macroeconomic story - where new renewable energy resources will fuel coming growth as the world’s economy picks up, or where one country hoards commodities it considers vital in an economic rebound.
But Ernst & Young’s Forer says it’s more complex than that.
“There are examples of countries around the globe, China is one, where cleantech is seen in an entirely different light,” he says, pointing out other emerging economies are focusing on the cleantech sector as well.
“It’s (about) jobs, it’s (about) building new industries, it’s (about) leading in technology, and it’s (about) environmental policies” in addition to growth, he says, adding that “It’s not just energy security, it goes well beyond that. It’s a long-term strategic issue.”
Whatever investors think about the Chinese government’s role in promoting the cleantech sector, investors agree that fighting China’s green technology momentum is tough.
“They’ve put a lot of money into cleantech, any way you look at it,” says Andrew Heintzman, CEO of Toronto-based environmental investment firm Investeco. “We should sit up and take notice because that’s where our competition is coming from.”
“China will be leading the green IPO world for the near and medium terms, and maybe much longer,” agrees Green Alpha’s Jabusch.
He points that it’s another example of growing emerging market dominance of a space North America and Europe companies owned just a couple years ago.
“If we don't like them taking the lead away from us, we should try competing, instead of complaining,” he says.
Disclosure: Green Alpha Advisors holds several Chinese cleantech firms that currently public.