CATL capitalises on EV outlook

IFR 2438 - 18 Jun 2022 - 24 Jun 2022
4 min read
Karen Tian, Fiona Lau

Electric vehicle battery maker Contemporary Amperex Technology has raised Rmb45bn (US$6.7bn) from an A-share private placement, the largest equity capital market deal in China this year and the second-largest globally.

The ChiNext-listed company priced the deal at Rmb410 per share, according to people with knowledge of the matter. This represents a 7.2% discount to the close of Rmb441.82 on Tuesday but a 20.7% premium to the floor price of Rmb339.67.

Books were about twice covered, said the people.

A positive outlook on the sector and a deep correction in CATL’s share price appealed to investors.

“Today is probably the best time to join the game. We are optimistic about the development of the lithium battery industry in the coming years,” said a Beijing-based fund manager during bookbuilding on Wednesday. "I heard that some investors are even selling their current CATL holdings and subscribing to the follow-on instead, as it comes with a discount."

CATL’s shares hit a record high of Rmb692 on December 3 but then dropped 49% to a recent low of Rmb353 on May 5. The stock has since rebounded 26% and closed at Rmb443.03 on Monday, when the company started marketing the placement.

The floor price was set at Rmb339.67 as Chinese regulations require it to equal 80% of the last 20-trading-day average. Most A-share private placements are done at the floor price but investors need to compete for the shares for the most popular ones, such as CATL's.

Each bid needed to be at least Rmb1.2bn, according to the term sheet, which placed the deal out of reach for most investors. In popular A-share follow-ons, investors are ranked from high to low based on their bids and subscribed amounts, and when a deal reaches the approved target cap, the remaining investors are automatically out.

“Apart from securities companies and fund management companies that can pool the funds from multiple accounts to meet the subscription requirement, many institutional investors may not be able to buy into the deal as their single account does not have enough money, or they have a limit on stock holdings,” said the fund manager.

Right price

“The previous decline of CATL's share price was mainly due to the combined impact of a declining gross profit margin on rising raw material costs in the first half, intensified competition in the industry, and the new wave of Covid-19 cases,” said Wang Yiming, head of advanced manufacturing research at China Renaissance Securities.

“Any price around Rmb410–Rmb420 is reasonable ... We believed that the May low was the bottom for the mid to long term. CATL’s business and share price will be driven by the increase of new energy vehicle production in the new quarter, the production of sodium-ion batteries and China’s introduction of a new power storage system,” Wang said.

Shares in CATL traded above the placement price on Thursday, falling 1.15% to close at Rmb460.30. That gave investors who participated in the deal a paper gain of 12.3% but they are subject to a six-month lock-up.

The placement was the world's second-largest ECM deal this year after South Korea’s LG Energy Solution, one of CATL's main rivals, raised W12.8trn (US$9.94bn) in an IPO in January.

CATL, which supplies electric car companies including Tesla, BMW, Daimler, PSA, Nio and Xpeng, plans to use the proceeds for production and upgrades of lithium-ion batteries in four Chinese cities and for R&D.

It posted a first-quarter net profit of Rmb1.49bn, down 30.9%, on revenue of Rmb48.7bn, more than twice its Rmb19.2bn revenue a year earlier.

China Securities was the sponsor, and joint bookrunner with Goldman Sachs Gao Hua Securities, CICC, UBS Securities and Huafu Securities.