Explainer | Can Chinese EV battery makers CALB, Tianqi Lithium recharge Hong Kong’s appetite for IPOs?

Successful listings by CALB and Tianqi Lithium will be a shot in the arm for the Hong Kong exchange in the absence of multibillion-dollar IPOs this year
Their applications come as the price of lithium has surged over the past year amid surging EV demand

IPO

Georgina Lee

Published: 8:30am, 15 Apr 2022

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China Aviation Lithium Battery (CALB) and Tianqi Lithium, two key players in the world’s biggest electric vehicle (EV) battery market, have applied to list on the Hong Kong stock exchange with the aim of raising at least US$1 billion each. The firms are keen on expanding capacity amid a bottle neck in the global supply of lithium.

Jiangsu-based CALB and Sichuan-based Tianqi filed their applications to the city’s bourse in the first quarter and are waiting for an approval from the exchange’s listing committee. The successful launch of their deals will be a shot in the arm for the exchange, given a lack of multibillion-dollar initial public offerings (IPOs) this year.

With the fourth-largest lithium reserves globally, China controls about 80 per cent of the global lithium battery supply chain. It had an installed capacity of 154.5 GWh (gigawatt hours) last year. Lithium is a key material used in EV batteries.

CALB’s and Tianqi’s IPO applications come as the price of lithium has surged over the past year amid surging EV demand. The spot price for lithium carbonate, for example, has shot up by about nine times over the past year.

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Beijing has pledged to reach peak carbon dioxide emissions by 2030 and net-zero by 2060. To reach this goal, the government has implemented various policy incentives to promote the use of EVs, which propelled the country to the top of the global EV sales chart last year with 3.33 million vehicles – or half of the world total – sold.

What is CALB?

CALB says in its IPO prospectus it is the second and seventh largest EV battery firm in China and the world, respectively, with an installed capacity of 1.2 GWh as of January. It was co-founded in 2015 by companies controlled by Aviation Industry Corp of China (AVIC), the state-owned conglomerate that makes fighter jets for the military, and the local government of Jinta district in Jiangsu province.

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It has production bases in Changzhou, Xiamen, Chengdu, Wuhan, Hefei and Jiangmen. Last year, its net profit reached 111.5 million yuan (US$17.5 million), rebounding from a net loss of 18.3 million yuan the previous year. It plans to use the IPO net proceeds to ramp up production capacity to 25 GWh by the end of this year.

Does CALB only make lithium batteries for EVs?

No, as it produces both lithium and ternary batteries, with the latter using nickel, cobalt and manganese in the battery’s cathode rather than lithium. It also produces energy storage systems used in power plants and data centres. The company’s main customers include Leapmotor, GAC Aion and Changan NEV.

Does Tianqi focus primarily on EV batteries?

Yes, but it is also a lithium ore miner. It owns Yajiang Cuola mine in China and has a 26 per cent stake in the Greenbushes mine in Australia. It is Asia’s second-largest lithium compound producer by output.

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Tianqi has been listed in Shenzhen since 2010, and its lithium mineral products are used in batteries for EVs and electronic products, and are also applied in glass, ceramics and aircraft. It supplies manufacturers of lithium-ion batteries, multinational electronics companies and glass producers.

China contributed the bulk – 84.8 per cent – of its revenue last year, with overseas sales contributing the rest. Its net profit for the nine months up to September 2021 totalled 2.3 billion yuan, reversing a net loss of 579.1 million yuan a year ago.

Santiago, Chile-based SQM, North Carolina, US-based Albemarle, Jiangxi province-based Ganfeng and Tianqi were the big four players producing almost half of the world’s refined lithium product supply in 2020, according to a report by consultancy Wood Mackenzie.

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Why is Tianqi seeking a second listing in Hong Kong?

A Hong Kong listing “will help the company expand overseas financing channels, [and] further enhance its international reputation”, said Frank Ha, the company’s president. It will also “optimise its capital structure and reduce its financial expenses”.

Tianqi said in its draft prospectus that it plans to use part of its IPO net proceeds to repay a US$3.5 billion syndicated loan taken out in 2018 to fund its US$4.1 billion minority stake investment in rival Chilean lithium miner SQM in May the same year. The SQM transaction has “caused us to bear significant amounts of interest expense and to pay significant amounts of cash for interest”, the company said.

In December 2020, its bond ratings were cut to Caa3 from Caa2 by Moody’s Investors Service, after it signed a loan extension agreement with banks. The rating implies that its bonds subject their holders to “very high credit risk”.

Part of the IPO proceeds will also go towards funding the expansion of its lithium hydroxide plant in Kwinana, in Western Australia.

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