Green deals overcome markets flashing red

FILE PHOTO: People walk past the R&D centre of Contemporary Amperex Technology Ltd (CATL) in Ningde, Fujian province, China, December 16, 2016. REUTERS/Jake Spring/File Photo

HONG KONG, June 28 (Reuters Breakingviews) - When it comes to equity, not everything is equal. As interest rate hikes, Russia-related sanctions and Covid-19 disruptions spook investors, the decarbonisation theme is dominating stock sales this year. Stretched supply chains and higher costs are a worry, but the Ukraine war will help keep capital coming.

China’s electric-vehicle battery champion Contemporary Amperex Technology, or CATL (300750.SZ), is a case in point. Dozens of investors bid enthusiastically last week for the company’s 45 billion yuan ($6.7 billion) private placement on the Shenzhen Stock Exchange, with orders for twice as many shares as were on offer. It is China’s biggest equity capital market deal this year and the second-largest worldwide. The only one ahead of it? A $10.7 billion initial public offering by CATL’s South Korean rival LG Energy Solutions (373220.KS).

Even sleepy state utilities have tapped markets. In April, Dubai Electricity and Water Authority (DEWAA.DU) sold $6 billion in shares as an opportunity to explore the use of innovative storage technologies in renewables, while the French government tried to reassure investors in Electricite de France (EDF.PA), struggling from nuclear outages, by backing a €3.2 billion rights issue.

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Against a 71% plunge in the value of IPOs through May, such green-tinted transactions are proving a rare bright spot. They account for about two-thirds of the $50 billion raised in the top 10 global equity deals, Breakingviews estimates using Dealogic data.

While some governments have turned back to fossil fuels to alleviate stress from recent oil and gas supply shocks, the latest investments suggest that longer-term there will be a push to accelerate the transition to cleaner energy for self-sufficiency reasons. Even in China, where imports of Russian goods have soared, Beijing recently released a series of policies promoting renewables and rolled out more consumer subsidies for electric vehicles.

Rising raw material costs threaten to erode profit and make new investments more expensive, but higher power prices and greater market penetration could offset them. The broader market swoon also may be attracting some fresh looks. CATL’s valuation, for example, has dropped to 59 times expected 2022 earnings from 80 times six months ago, per Refinitiv. That should help green deals continue to overcome markets flashing red.

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Chinese electric-vehicle battery maker Contemporary Amperex Technology said on June 23 it had raised 45 billion yuan ($6.7 billion) from 22 investors in a private placement.

In total, 42 investors bid for the 132.5 million shares on offer. The final issue price, at 410 yuan, represented a 21% premium to the floor price of 339.67 yuan.

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Editing by Jeffrey Goldfarb and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.