Energy & Resources

Hot metal

Tianqi offers Hong Kong’s biggest IPO so far this year

Tianqi Lithium3 w

A Tianqi Lithium plant

When Tianqi Lithium purchased a 23.8% stake in Chilean lithium miner SQM (Sociedad Qimica y Minera) in 2018, the Chinese press chose the metaphor of a snake swallowing an elephant to describe the ambitious deal. Unfortunately for Tianqi, the investment in SQM also brought on a severe bout of indigestion.

In order to pay off the $3.5 billion that it had borrowed to purchase the SQM stake, Tianqi was forced to cede a 25% stake in one of its most prized assets, the Greenbushes lithium project in Australia (the world’s lowest-cost and highest-grade hard rock lithium mine) to Australia’s IGO in the summer of 2021.

Tianqi’s efforts to put its finances into better order include the securing of a secondary listing on the Hong Kong Stock Exchange. Earlier this month, the Shenzhen-listed group said that the China Securities Regulatory Commission (CSRC) had approved its listing plan.

This marks Tianqi’s second attempt to float its shares in Hong Kong, after aborting a previous effort in 2018 when the SQM acquisition and falling lithium prices called its finances into question.

The Chinese press believes that this time the company will get the deal done. Tianqi has struggled with its debt levels for the last four years, but its Shenzhen shares have been buoyed by the impact of rapidly rising lithium prices. The stock began to rise in September 2020 from the Rmb19 level to a high of Rmb136.5 almost a year later.

Tianqi’s shares are still quoted around the Rmb123 level this week, equating to a price-earnings ratio of 15.6 times forecast 2022 earnings. This places it at a premium to rival Ganfeng Lithium, which is trading around 13.9 times.

Reportedly the company is planning to price the Hong Kong IPO at a 50% discount to its A-share. Yet a $2 billion offering would still rank it as the biggest offering in Hong Kong this year.

China’s National Business Daily reports that Tesla would like to be a cornerstone investor in the Hong Kong IPO as part of its efforts to build closer ties with its raw materials suppliers. But the media also points out that Tianqi, like other Chinese lithium miners is having to contend with a wave of resource nationalism in many of the countries in which it operates.

For instance, the left-leaning government in Chile is in the process of setting up its own state-owned lithium company in a bid to capture more of the benefits from its abundant lithium resources itself.

Earlier this year, the Chilean press also reported that a key political committee had agreed to a proposal to nationalise some of the country’s mines as part of a wider overhaul of the constitution.

Current and potential shareholders in Tianqi will be monitoring developments…

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