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China in Europe: buying clean-tech

A string of green energy acquisitions in crisis-stricken Europe have been hyped as a sign of China’s growing financial clout. So, asks Xie Dan, has the age of "owned-by-China" arrived?

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Since Hanenergy announced that it was buying a subsidiary of German solar firm Q-cells, the Chinese company’s senior vice president Jason Chow has been fielding calls about further possible purchases. “Before they thought we weren’t serious, but now they can see we’re for real,” he said.

In early June, Hanenergy, a privately owned energy developer, announced the acquisition of Solibro, a thin-film maker owned by Germany’s Q-Cells, itself once the world’s largest solar-cell manufacturers. On June 12, Titan Wind Energy, an A-share listed manufacturer of wind-turbine towers, said it was buying a Danish factory from Vestas, the world’s largest turbine maker. And the following day, the State Power Group announced the purchase of assets from bankrupt Swedish automaker Saab, which it plans to use as the basis for electric vehicle production.

With three deals with big European companies coming in quick succession, the new energy sector sat up and took note. Gerard Lyons, chief economist at Standard Chartered bank, has said we are moving from an era of “made-in-China” to one of “owned-by-China”. Has that era now arrived? 

There is certainly plenty of appetite to sell to China. In the past six months, the world’s fourth-largest solar cell maker, China’s Trina Solar, has reportedly been approached as a prospective buyer for at least 50 European firms. A company insider estimated that there are almost 100 solar companies alone on the market, looking for a home. And China-based Jinko Solar (which is listed on the US stock market) has received around 10 solicitations of interest – compared with virtually zero prior to the end of 2011.

Deal-makers are also busy. In the last three months Dong Na, marketing director for China at Green Business Norway, has been flying around China trying to find potential buyers for over a dozen “hot” European new-energy projects.

Much of the noise is the result of the Eurozone crisis, which has left an increasing number of firms facing bankruptcy and trying to shift assets. Fast-growing, cash-rich new energy firms in China are seen as the ideal suitors. The deal-brokers meanwhile are enjoying their best business since the global downturn, and are anticipating mouth-watering commissions.

But anticipation isn’t the same as reality. And, bar those three purchases by small or medium sized firms, the matchmakers haven’t seen much success in 2012 so far.

Late last year, the regional development agency for Paris attempted to find a Chinese buyer for France’s only fully vertically-integrated solar power company, Photowatt. But after six months, they decided that Chinese firms weren’t interested. Lu Gaoguan, senior manager at the agency’s China office, revealed that in the end the French government arranged for state-controlled utility EDF to purchase the firm.

“Only an idiot would buy it,” said the chief financial officer at one listed new-energy firm. He said the only reason to make such a purchase would be for the factories, market or brand, but that “top tier” firms such as Suntech, Yingli and Goldwind already have these three things. Even if they didn’t, they wouldn’t want to take on something that might prove a burden, he said: “It’s like finding a partner – it doesn’t matter how good-looking someone is, if they’ve got AIDS you’re still going to need to think about it.” 

Bravado aside, China’s new energy stars have financial problems of their own sufficient to turn them off acquisitions. Since 2011, business has suffered at China’s wind and solar firms. (Editor’s note: Suntech, one of the biggest players, is struggling with heavy debt and this week was plunged into further crisis as it disclosed a potential fraud by an affiliated company.) In addition, the big firms already have their supply chains and business models set up – and making the decision to expand is something of a leap.

Knocked back by high-profile private firms, those trying to flog Europe’s wares have tried their luck with state-owned companies with huge cash reserves. One partner at a Shanghai private equity fund said he had been trying to find a buyer for a European wind power firm all year. He thought the best bet would be a state-owned firm, but after talks with building materials firm BBMG, China Metallurgical Group and China Shipbuilding Industry Corporation, he found an insurmountable gulf between the two sides. The state-owned firms needed at least six months to make a decision, while his European partners only had six months of cash left. The prospective buyers were aloof and made low-ball offers, meaning that as yet, no deal has been done.

Cao Huang, energy and electricity director at the Chinese branch of US consultancy Martec also played down the deals that have been done: none of the 2012 acquisitions were of manufacturers of core components such as solar cells or turbines. Rather, they involved small or medium sized firms in non-core areas.

China still needs to work to win the confidence of European vendors, and ensure that they have sufficient technical and manufacturing capacity as well as cash, said Dong Na. Only then can China realise the aims of its “going out” policy, which encourages Chinese firms to invest abroad.

Cash is a big one. The three acquisitions seen this year were able to proceed smoothly because there was plenty of available money to see them through. Hanergy is considered one of the cash-richest companies in the sector, thanks to income from its hydropower business. As a listed company, Titan Wind Power can raise money through the markets, while State Power has resolved its funding issues by partnering with Japanese venture capitalists.

So, what next? Some observers say to watch the North American market, where an increasing number of innovative companies are getting into difficulties and Chinese players could make a move. Most of the US firms seeking buyers are innovators, companies that received venture capital four or five years ago and would now want to float on the stock market if their hopes hadn’t been dashed by the global financial crisis. Venture capital and private equity investors are looking for an exit, and this means a big acquisitions market.

Hanergy’s Jason Chow said that these US firms tend to be better than the Europeans when it comes to packaging themselves up for sale. They have elite management teams put in place for the purposes of launching on the stock market, which not only make it harder for the Chinese firms to get past the outer layers and understand the actual circumstances of the company, but also push up the price – former Intel and GE executives do not come cheap. But Europe’s new energy start-ups may in fact be more suitable for Chinese buyers: in Chow’s view, they are simpler, and the founders more concerned with the long-term interests of the staff.

Aside from clean energy, Dong Na said there are acquisition targets in other environmental fields too, such as waste handling and wastewater treatment. And a number of small, private Chinese firms who hope to push ahead of their competitors are looking at deals in some of the less obvious European markets like Italy and Denmark.

Dong added that northern Europeans are considered difficult negotiating partners in China. But Lu Gaoguan of the Paris development agency remains confident: “The ideal time for acquisitions is approaching.”

 

This article was originally published in Southern Weekend, where Xie Dan is a reporter. It is translated and published here as part of our Green Growth project, a collaboration between chinadialogue and The Energy Foundation. 

Homepage image by Southern Weekend 

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