Private Equity Investors Pile Onto China’s Environmental Sector

In 2013, private equity firms poured over US$1.2 billion in companies related to the environment industry in China, accounting for 8.3% of the year’s total transaction volume, the highest percentage recorded for this sector, according to Asia Private Equity Review.

Last year’s environment-related investments were driven by a few large deals, including RRJ capital’s US$349 million injection into Hong Kong-listed China Everbright International Ltd. for a 7.85% stake, and RRJ Capital, China Investment Corp., Shanghai Industrial Holdings Ltd.’s $209 million investment into SIIC Environmental Holdings Ltd.

As an indication of private equity firm’s enthusiasm in China’s environment industry, RRJ Capital acquired Everbright’s ordinary shares, instead of the usual instrument of convertible bonds that offer investors downside protection.

The purchase price of HK$8.52 also represented a very modest 1.9% discount over the average closing price for the last five trading days prior to the announcement.

The deal of SIIC Environment valued the Singapore-listed water treatment company at US$586.6 million, a far cry from 2007 when SIIC, then known as Asia Water Technology Ltd., was asked by its bondholders to go into receivership.

China’s environment industry not only gets private equity and venture investors excited, hedge funds are also joining the party. Hong Kong-based alternative investment firm PAG is investing US$200 million to GCL-Poly Energy Holdings Ltd., one of the world’s largest solar panel producers, through one of PAG’s hedge funds.

The most active private equity and venture capital investors in the environment sector are Tsing Capital with over 30 portfolio companies in the category; Shenzhen Co-win Venture Capital Investment Ltd. with 20 such portfolio companies, DT Capital Partners with 16 portfolio companies, as well as Sequoia Capital China and Qiming Venture Partners, each with 12 and 6 portfolio companies in the environment sector.

Less than 1% of china’s 500 largest cities meet international air quality standards recommended by the World Health Organisation, according to the Asian Development Bank.

Last August, China’s State Council’s General Office issued its agenda for the future development of China’s environmental industry, planning to boost the environmental industry to RMB4.5 trillion ($730.5 billion) by 2015, with an average annual growth rate of more than 15%.