Nickel IPO puts Jakarta at centre of China EV boom

A worker uses the tapping process to separate nickel ore from other elements at a nickel processing plant, March 1, 2012.

HONG KONG, Nov 23 (Reuters Breakingviews) - A Hong Kong stock market debut puts Jakarta at the centre of China’s electric-car boom. Lygend Resources & Technology (2245.HK), a Chinese nickel trader, is looking to raise up to $594 million in an initial public offering to expand in Indonesia. The company’s presence in the resource-rich archipelago allows it to export copious quantities of the metal, which is in high demand back home.

Lygend both trades and produces nickel products, essential for stainless steel and batteries. Revenue more than doubled to nearly 10 billion yuan, around $1.4 billion, in the first half of 2022 from a year earlier; its bottom line grew even faster to 2.3 billion yuan, thanks to a roughly 20% jump in prices for the heavy metal since the beginning of the year.

Lygend’s Indonesian operations give it an edge. Around a fifth of the world’s nickel resources are located in the country, which accounted for nearly 40% of ore unearthed last year, according to the company’s prospectus. To compare, China, the world’s largest maker and buyer of electric cars, has less than 2% of known nickel reserves, estimates the U.S. Geological Survey.

There are policy risks, though. In 2020, President Joko Widodo hastened an export ban on the raw material, nickel ore, forcing the industry to bring smelting onshore even as Covid-19 battered demand. Lygend sales fell 17% that year before the company began to process the metal onshore with its local partner. Business has bounced back since, but Lygend flags there are risks that the export ban may be expanded to include products refined from the ore.

At the midpoint of its marketed price range, Lygend would be valued at just over $4 billion. That’s roughly 5.5 times this year’s annualised earnings, assuming the same first-half growth rate, and in line with the average for a basket of peers including Brazil’s Vale (VALE3.SA) and compatriots Tianqi Lithium (002466.SZ) and Ganfeng Lithium (002460.SZ). That looks prudent: recent Hong Kong listings by electric-car maker Zhejiang Leapmotor Technology (9863.HK) and battery maker CALB (3931.HK) produced lacklustre debuts, while the benchmark Hang Seng Index (.HSI) has had a wild few months, rising 19% since the start of November, but still down a quarter this year. Lygend looks set to navigate a bumpy road onto public markets.

Bumpy ride: Hong Kong markets are volatile

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

CONTEXT NEWS

China’s Lygend Resources & Technology, which produces and trades nickel products like nickel-cobalt compounds used in electric car batteries, aims to raise up to $594 million in a Hong Kong initial public offering, according to its prospectus published on Nov. 21. At the upper end of the marketed price range, the deal would value Lygend at $4.6 billion.

Lygend plans to use 56% of the proceeds for the development and construction of nickel production projects on Indonesia's Obi Island. It also plans to contribute additional capital to a joint venture with Contemporary Amperex Technology (CATL), to develop products for electric vehicles.

Hong Kong CATL is the largest cornerstone investor, according to the prospectus.

The company first filed for an IPO in the city in February, before its application expired in August.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

Editing by Robyn Mak and Thomas Shum

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Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including environmental policy, cleantech and green finance, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.