CATL eyes jumbo Swiss GDR offer

IFR Asia 1271 - 04 Feb 2023 - 10 Feb 2023
5 min read
EMEA, Asia
Fiona Lau, Robert Venes

Chinese electric vehicle battery giant Contemporary Amperex Technology is mulling a GDR offering in Switzerland which could raise about US$5bn–$6bn – a potential game changer to draw liquidity to the Chinese companies that are already listed on the SIX Swiss Exchange.

CATL has held discussions internally and externally with financial advisers for the potential Swiss listing, which could come this year, said people with knowledge of the matter.

China Securities, CICC, Goldman Sachs and UBS, which arranged CATL’s Rmb45bn (US$6.55bn) A-share private placement last year, will lead the GDR offering if it goes ahead.

A GDR listing could help provide CATL with another fundraising channel and promote its international profile, said the people.

The world’s largest lithium-ion battery manufacturer has been expanding aggressively. The company invested €1.8bn (US$1.98bn) in a German plant, its first outside of China, and kicked off production of lithium-ion battery cells in December. In August, CATL said it would build a €7.34bn battery plant in Hungary.

At home, CATL is planning a new battery recycling plant in Foshan, in Guangdong province, with investment of up to US$3.5bn.

“CATL has huge capital needs and a GDR listing fits that well,” said a banker who has worked on several Swiss GDR listings. “A-share companies’ GDR plans normally secure regulatory approval faster than an A-share placement, and they can sell shares at a smaller discount in a GDR than a Hong Kong listing.”

Chinese regulations limit the discount on a GDR offering at 10% of the 20-day average closing price of the issuer's stock before a deal is launched.

Government support

China, which is trying to reverse the economic slowdown caused by the Covid-19 pandemic, has said it supports the listing of qualified companies in Hong Kong and abroad. While there is resistance to Chinese investments in certain countries and outright hostility in the US, Switzerland offers the right combination of financial sophistication and diplomatic neutrality.

CATL’s Swiss GDR is set to be the largest such offering so far, joining at least 30 A-share companies that have announced such plans. Those include the up to US$4bn offer of photovoltaic product manufacturer LONGi Green Energy Technology, and share sales of around US$1bn–$1.5bn by online wealth management service provider East Money Information, hog breeder Muyuan Foods, lithium-ion battery materials maker Zhejiang Huayou Cobalt and fine chemical materials manufacturer Guangzhou Tinci Materials Technology.

However, Sino/Swiss GDRs have been noted for low liquidity. Nine A-share listed companies have come to Switzerland since July last year, raising a combined US$3.3bn, but their shares are barely traded and investors generally convert the GDRs into A-shares once the 120-day lock-up expires.

For instance, Ningbo Shanshan, one of the four companies that listed in the first wave of Swiss GDRs, said just 32.4% of the original 15.44m GDRs remained. The company is notable for having the only GDR not to trade since listing.

When GDRs are converted the underlying A-shares are sold on exchanges in China and the GDR holder receives cash.

Game changer

A CATL listing could act as a catalyst to attract liquidity to Switzerland-listed Chinese companies.

“CATL is a top-tier name. Unlike other Swiss GDRs that were basically largely sold to Chinese investors, CATL will be able to attract international investors and they will probably keep their trading there,” said another banker who focuses on Swiss GDR offerings.

“This could create a knock-on effect and draw more liquidity to GDRs,” said the banker.

Some are less optimistic.

“There have been a relatively limited number of these deals in the market as a whole, but the quality has to be high. It also needs to be of a decent size and, while this deal is very large, there have been fairly large deal sizes so far and size has not been an issue in terms of getting them done,” said a European banker involved in the CATL GDR. “Beyond size, I don’t see this deal progressing any differently from previous trades.”

CATL, which supplies electric car companies including Tesla, BMW, Volkswagen, Nio and Xpeng, proved its ability to attract international investors in its private share placement in June last year.

The deal, the largest-ever A-share marketed follow-on and the largest follow-on globally in 2022, saw Rmb28.9bn of total orders from offshore investors. The total amount allocated to those investors was Rmb18.7bn or about 42% of the transaction.

Renowned international investors including Singaporean state investors Temasek Holdings and GIC, private equity company Hillhouse Capital and Thai state-owned energy giant PTT participated in the transaction.

CATL led the global EV battery market with a 37.1% market share from January to November 2022, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries during that period.

Its market share was almost triple that of BYD, another Chinese EV battery maker, which ranked second with a 13.6% share.

CATL's A-shares closed at Rmb466.10 on Thursday and are up 18.5% this year. Its market capitalisation was Rmb1.14trn.

Refiled story: Fixes grammar