TODAY & TOMORROW (12-13 May) in Beijing, financiers, policy shapers, project developers and cleantech manufacturers worldwide congregate at the fourth Renewable Energy Finance Forum to discuss debt and project financing for renewable energy in China.
Some US$270 billion of investment in clean technology will be required if China’s targets for 2020 are to be met, according to the event organizer, Euromoney.
And SGX-listed synthetic fiber maker C&G Industrial is one company that has jumped onto the bandwagon in the chase after China’s cleantech dollar.
Yesterday, it firmed up a 360-million yuan deal to acquire 100% in CUGU Environmental Protection International Ltd (Cugu EPIL), which builds and operates waste incineration power plants under build-operate-transfer (BOT) project financing schemes.
"We decided to bite the bullet and diversify into renewable energy as the sector outlook is very bright, unlike the textile sector which remains extremely challenging," said CEO Cai Junyi in an email response to media query.
"Its revenue stream is stable, and comes from waste supply agreements with customer duties from the government as well as electricity offtake agreements with power companies," elaborated Mr Cai.
Cugu EPIL’s first waste incineration power plant, located in Fujian’s Jinjiang, commenced commercial operations in 2006 when China’s Renewable Energy Law came into effect.
The policy offers financial incentives to stimulate renewable energy development, including discounted lending, subsidies and a range of tax breaks.
As much as 70% of China’s energy is currently generated by coal incineration. However, China’s industrialization has so badly polluted its environment that official studies have linked pollution to the alarming 40%-increase in birth defects reported over 2001-2006.
The positive side of the coin is an increased awareness for the environment that has contributed to a new Chinese industrial revolution in clean energy.
Other than financial stimulus, China’s government is also moving towards more comprehensive support mechanisms such as requiring power operators to buy electricity from alternative energy providers and providing economic incentives to such producers.
Waste-to-energy (WTE) is gaining ground over the land-filling mode of waste disposal in China because of the following advantages:
(i) the ability to recover indigenous energy,
(ii) the scarcity of land near cities for future landfills, and
(iii) outright government support for WTE projects, such as electricity and waste processing credits.
Shareholders will be pleased to know that as purchase consideration, C&G Industrial shares will be issued at a premium 21 cents apiece, about 121% above the weighted average price of 9.5 cents over the 6 months leading up to the Sales and Purchase Agreement.
Investors have so far reacted favourably to this corporate development - C&G Industrial’s share price leapt 50% overnight to 15 cents on trading volumes exceeding 25 million shares immediately after the MOU was announced on 16 Apr.
The stock retraced to 11.5 cents a few days after a tense AGM took place on 21 Apr, when some disgruntled shareholders quizzed the management on its rationale for diversifying out of the synthetic fiber business.
However, the stock quickly recovered, and last closed at 19 cents yesterday on heavy trading volumes of about 15 million shares.
The vendors are under a moratorium not to sell their new share allotment for 12 months from the date of issue.
While the deal is an interested-party transaction (Cugu EPIL’s vendors are none other than C&G Industrial’s chief executives), the Rmb 360.4-million purchase consideration is based on independent valuation by Jones Lang LaSalle Sallmans.
The proposed valuation is based on Cugu EPIL’s concessionary rights to operate 4 waste incineration power plants in Fujian and Hubei until around 2035.
Plans are underway to increase the capacity at Cugu’s Fujian Jinjiang plant by threefold so that it is able to treat 1,800 tons of municipal solid waste daily.
Capital outlay will be heavy, amounting to about a billion yuan for expanding the Jinjiang plant as well as building the 3 other plants.
However, Mr Cai is confident of raising the necessary funding as Cugu EPIL has a stable revenue model and is also in one of the 10 industries of focus in China's 4-trillion yuan fiscal stimulus.
Upon completion, the 4 plants will have a total capacity of processing about 4,400 tons of municipal waste daily.
Read what happened at its recent AGM:
C&G: From staid textile to sexy waste-to-energy
