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ESG: CATL & LG Chemical: Lithium & Battery Manufactures

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ESG: CATL & LG Chemical: Lithium & Battery Manufactures

#Macro Economics#TMT#Energy & Utilities#Market Outlook#Technology#Greater Bay Area#ESG in China - Impact Investing

case study
executive summary

The world's top ten electric vehicle battery manufacturers are swept up by China, Japan and South Korea, including five in China. CATL is the world's largest manufacturer of electric vehicle batteries, with a 24% share of the world.

Your key takeaways:
1) Acquire keywords technology and utilities
2) Identify key leaders
3) Understand China's market outlook

Current News: CATL’s Rmb45bn A-share private placement
10 Feb 2023
Electric vehicle battery maker Contemporary Amperex Technology’s Rmb45bn (US$6.7bn) A-share private placement drew significant demand from foreign investors in a year when Chinese domestic offerings dominated the global equity capital markets.

CATL’s successful follow-on highlighted the kind of global interest a top-quality A-share listed company can attract despite challenging market conditions. It also showed China’s equity investment channel for foreign investors could accommodate huge demand, paving the way for more mainland-listed companies to follow.

The deal, the largest-ever A-share marketed follow-on and the largest follow-on globally in 2022, hit the market in June when global stock markets were weighed down by Russia’s invasion of Ukraine, China’s sharp economic slowdown and global inflation worries.

Marketing started on June 13 and the placement was priced on June 15, hours before the US Federal Reserve raised its benchmark interest rate by 75bp in its most aggressive increase since 1994.

Despite these uncertainties, foreign investors still wanted exposure to CATL, the world’s largest EV battery maker, aware there had already been a deep correction in the share price before launch. Shares in ChiNext-listed CATL hit a record high of Rmb692 on December 3 2021 but closed at Rmb443.03 on June 13.

The floor price was set at Rmb339.67 as Chinese regulations require it to equal 80% of the preceding 20 trading days’ average. Most A-share private placements are done at the floor price but CATL priced the shares at Rmb410 each, representing a 7.2% discount to the close on June 14 but a 20.7% premium to the floor price.

The deal drew tremendous demand, with subscription of Rmb93.3bn, 2.07 times the deal size, from 42 orders. Total orders from offshore investors were Rmb28.9bn – the largest offshore subscription size among A-share follow-on offerings – and the total allocated amount was Rmb18.7bn or about 42% of the transaction.

Top global investors including Singapore state investors Temasek Holdings and GIC, Hillhouse Capital and Thai state-owned energy giant PTT participated in the transaction. Other foreign investors joined through the Qualified Foreign Institutional Investor scheme.

The shares were allocated to 22 investors. Apart from the portion sold to offshore investors, 12% of the shares went to mutual funds, 16% to insurers, 24% to securities brokers, and 6% to others.

Shares in CATL traded well after the placement, touching a high of Rmb563.50 on June 24. The stock has retreated since then in line with the broader markets.

China Securities was the sponsor, and joint bookrunner with CICC, Goldman Sachs Gao Hua Securities, UBS Securities and Huafu Securities.


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