China's zealous cleantech firms risk burning cash

Beijing Enterprises Holdings

15/11/2016 02:03

(The author is a Reuters Breakingviews columnist.  The opinions 
expressed are her own.) 
    By Katrina Hamlin 
    HONG KONG, Nov 15 (Reuters Breakingviews) - China's 
eco-friendly businesses are eager to expand by buying up 
overseas expertise. The Chinese market for green goods and 
services is flourishing - partly because of regulations designed 
to limit pollution - and chasing high-tech, high-profile buys 
pleases ambitious officials in Beijing. But acquisitions are not 
always the best way to grow. 
    One case in point is Attero. The Dutch waste management 
group has attracted a crowd of Chinese suitors, according to 
Reuters sources, with some bids in excess of 1 billion euros 
($1.1 billion). One bidder identified in the report, Hong 
Kong-listed Beijing Enterprises Holdings  0392.HK , already 
splurged 1.4 billion euros on Germany's EEW Energy from Waste 
earlier this year. 
    Chinese companies that convert garbage to energy and heat 
may get a boost after the government decreed in September that 
incineration should make up 50 percent of urban waste disposal 
by 2020, compared with just 20 percent in 2010. The hope is that 
buying well-established, sophisticated businesses such as EEW 
and Attero could help local players scale up and fine-tune 
operations. As a bonus they'll gain a double dose of political 
capital from bigwigs eager to see Chinese companies both "go 
green" and "go out" - the catchphrase for overseas expansion. 
    But it's easy to get carried away by promising policies and 
miss inconvenient truths. A lot of the technology needed to burn 
trash is mature and readily available. Chinese companies have 
relatively little to gain by shelling out for targets like 
Attero, which don't hold many exclusive patents. 
    While the Dutch company and peers in established markets 
boast know-how and experienced executives, the $6 billion 
Beijing Enterprises can already tap those through EEW. Even for 
other Chinese firms, there are thriftier ways to learn best 
practice, such as through cooperation deals or partnerships. 
Many PRC companies' finances already look overstretched, 
suggesting non-essential acquisitions should be avoided: Beijing 
Enterprises, for one, has attracted scrutiny from Standard & 
Poor's over its borrowing. 
    China's cleantech tycoons are justifiably ambitious, with a 
huge potential market and a policy tailwind. Yet even garbage 
collectors must be picky to avoid throwing out too much cash 
with the trash. 
     
    On Twitter https://twitter.com/KatrinaHamlin  
     
    CONTEXT NEWS 
    - Dutch waste-management group Attero has attracted several 
Chinese suitors according to people close to the deal, Reuters 
reported on Nov. 1.  
    - Hong Kong-listed Beijing Enterprises Holdings plans to use 
the recently acquired German business EEW Energy from Waste as a 
vehicle to buy Attero, the people said. Beijing Enterprises 
bought EEW for 1.4 billion euros ($1.6 billion) from Swedish 
private equity firm EQT Partners in March. Beijing Capital and 
China Energy Conservation & Environmental Protection are also 
among the groups preparing bids for Attero, the people told 
Reuters. 
    - Beijing Enterprises' purchase of a 20 percent stake in a 
Russian oil exploration and production company is credit 
negative, ratings firm Standard & Poor's said on Nov. 10. 
Moody's Investors Service said on Nov. 9 that it had placed the 
company on review for downgrade following news of the deal. 
    - China's NDRC published a consultation paper in September 
suggesting that policymakers want waste incineration to account 
for 50 percent of urban waste disposal by 2020, up from 20 
percent in 2010, CLSA analysts wrote in a note on Oct. 2. 
    - For previous columns by the author, Reuters customers can 
click on  HAMLIN/   
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
Dutch waste management group Attero attracts several Chinese 
suitors - sources      urn:newsml:reuters.com:*:nL8N1D15CI 
BREAKINGVIEWS-China's record waste deal is far from rubbish     
 urn:newsml:reuters.com:*:nL3N15K1JG 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Editing by Richard Beales and Kathy Gao) 
 ((katrina.hamlin@thomsonreuters.com; Reuters Messaging: 
katrina.hamlin.thomsonreuters.com@reuters.net)) 
 
Keywords: WATERLAND ATTERO/M&A CHINA BREAKINGVIEWS