China Everbright International Cashes in on Chinese Eco Crisis
The Hong Kong investment firm is helping solve China’s environmental problems by developing projects ranging from waste treatment plants to solar power stations.
After three decades of breakneck economic growth, China is cleaning up its act. Lately, Beijing has been rolling out a raft of environmental regulations, chief among them June’s announcement of ten measures to improve urban air quality, including a target to reduce emissions from highly polluting industries by 30 percent within four years. In the coming months the State Council, the executive head of the Chinese government, will announce new “green growth” policies as it starts to spend some $650 billion on environmental cleanup and ecologically friendly technologies through 2015.
Few are better equipped to capitalize on these developments than Chen Xiaoping, CEO of China Everbright International, the offshore division of state-owned financial services giant China Everbright Group. Since being parachuted in from Beijing to lead the Hong Kong–based firm in 2001, the former central bank regulator has helped pioneer Chinese environmental investing.
Between 1999 and 2001, China Everbright International lost HK$2 billion ($258 million) on unprofitable Chinese infrastructure assets. Chen, previously a department head in the bureau of investigation and supervision at the People’s Bank of China, saw an overlooked opportunity to turn the ailing business around. He sold off toll roads and bridges and focused on financing, building and operating green projects such as waste-to-energy plants, wastewater treatment facilities and solar power stations. “Early on, we saw this sector as a bright spot that few others had invested in,” Chen says. “We saw there was a huge market.”
Today, Chen oversees assets with a combined value of HK$18.3 billion, arguably China’s biggest green portfolio. China Everbright International owns and operates 49 environmental protection projects and has an additional 26 in the pipeline, half of which are waste-to-energy plants; the others comprise wastewater treatment, hazardous-waste treatment and biomass power generation facilities.
To fund its ventures, publicly traded China Everbright International works with global banks, including Asian Development Bank and International Finance Corp., a member of the World Bank Group. It also co-invests in projects and sells technology such as air treatment systems. Between 2002 and 2012 the firm’s annual revenue surged more than 13-fold, to HK$3.4 billion; net profit grew 59 times, to HK$1.1 billion. China Everbright International had HK$2.5 billion in revenue for the first half of 2013, a 78 percent year-over-year increase.
“Despite its state-owned background, the company has had fast growth,” says Benjamin Pei, an analyst with Hong Kong–based brokerage Bocom International Holdings Co., a division of China’s Bank of Communications Co. With a 10 percent annual internal rate of return over the past decade, China Everbright International hasn’t sacrificed profitability, Pei adds. Bocom forecasts that it will achieve a return on equity of between 12 and 15 percent within a few years, he says. (Read more: “For China’s Banks, Wealth Management Booms Along with Risk Concerns”)
China needs CEO Chen and his team, whose rivals include Hong Kong–based New World Development Co. and Hutchison Whampoa, to help it tackle an environmental crisis. The country is the world’s biggest carbon emitter, accounting for about 25 percent of total emissions; it also produces a quarter of the world’s solid waste, according to a 2012 Asian Development Bank report.
“There is a real political commitment to clean up [China’s] environment and improve energy use,” says Ray Cheung, a Beijing-based environmental consultant and former executive director of the U.S.-China Energy Cooperation Program, which represents U.S. energy companies in China. For investors, the challenge is to create the right models to exploit this growth opportunity, Cheung notes. “It takes a lot of patience and the right strategy.”
China Everbright International is 45.5 percent owned by Hong Kong–based China Everbright Holdings Co., a subsidiary of Beijing-based China Everbright Group, which manages 2.4 trillion yuan ($392 billion) in assets. Its second-largest shareholder, with a 5.99 percent stake, is Munich-based financial conglomerate Allianz. The firm plans to grow by making its existing projects more profitable and searching out new ventures, Chen explains. It owns just one facility outside China: a 3.7-megawatt solar power plant near Berlin that began operations in 2011.
Chen hopes to find foreign partners for larger projects overseas, particularly in Europe and the U.S. “We’re especially interested in investing in technology or technical cooperation,” he says. “Through this type of cooperation, we can gain and further expand our growth in China.” • •
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