CATL leads new charge of Mainland-listed companies into Hong Kong

The world’s largest EV battery maker, which is already listed in Shenzhen, is reportedly exploring an IPO to raise $5 billion or more from a second listing in Hong Kong

Key Takeaways:

• CATL has reportedly hired advisers for a potential Hong Kong listing that could become the city’s largest in more than three years
• The world’s largest EV battery maker’s biggest appeal for foreign investors could be its ability to remain consistently profitable despite recent turmoil in its sector

By Doug Young

After two years of winter, Hong Kong’s IPO market is finally heating up with a steady stream of new listings by private Chinese companies in the final months of 2024. Now, it appears the market could soon get an additional jolt as a growing number of companies already listed on Mainland China’s domestic A-share markets seek second listings in Hong Kong.

The latest that’s reportedly considering such a second listing is Contemporary Amperex Technology Co. Ltd. (300750.SZ), also known as CATL, which is the world’s largest electric vehicle (EV) battery maker. The giant is reportedly in talks with advisers for a potential Hong Kong listing that could raise $5 billion or more as early as the first half of next year, according to a Bloomberg report, citing unnamed people familiar with the matter.

A listing of that size would be the largest since short video app operator Kuaishou (1024.HK) raised $6.2 billion in its 2021 IPO, according to Bloomberg. What’s more, the final fundraising amount could easily surpass Kuaishou’s, since $5 billion would represent just a tiny 3.1% of CATL’s current market value of $160 billion.

Several factors appear to be driving this nascent trend for big-name Mainland companies to seek Hong Kong listings. The companies want to broaden their investor bases to include foreigners, probably at least partly as a hedge against potential weakness in China’s domestic A-share markets where sentiment is still generally weak despite a recent uptick.

Equally important, companies like CATL can use Hong Kong listings to raise funds for their global expansion. That factor could become increasingly important as China makes it more difficult for companies to move large amounts of money outside the country as part of its efforts to prop up the domestic economy.

Access to fundraising via Hong Kong would also avoid potential negative effects from a declining yuan. The Chinese currency has been sinking rapidly in the last three months, and that could continue as China tries to keep its exports competitive in the face of growing protectionist tariffs in both the West and developing markets.

While companies with dual listings in Hong Kong and China’s A-share markets are nothing new, most such names are big state-owned giants like the country’s big four banks, energy companies and telecoms carriers. Home appliance giant Midea (0300.HK; 000333.SZ) broke with that tradition when it raised $4.6 billion through a Hong Kong listing in September to complement its existing listing on the Shenzhen Stock Exchange.

The stock has done quite well since then, rising about 40% since it began trading. What’s more, the Hong Kong-listed shares currently trade at a price-to-earnings (P/E) ratio of 13, or nearly identical with the 13.7 for the Shenzhen-listed shares. That’s quite unusual for this group of dual-listed companies, whose A-shares often trade at big premiums to their Hong Kong-listed counterparts. It seems to show that foreign investors in Hong Kong are willing to value more entrepreneurial companies like Midea and CATL more highly than big state-owned enterprises, which could lead more such private companies to consider similar dual listings.

Other A-share listed companies currently considering similar Hong Kong listing include innovative drug maker Hengrui Pharma (600276.SH) and leading condiment maker Haitian Flavoring (603288.SH).

Ditching Switzerland

With all that broader background in mind, we’ll take a closer look at CATL, including its latest financials and motivations for a Hong Kong listing. In fact, Hong Kong wasn’t the company’s first choice for such an overseas listing.

That choice was actually Switzerland, where the company was planning to raise $5 billion or more by floating shares on the SIX Swiss Exchange in early 2023. Such a plan would have made sense, as it could have raised euros to fund a local expansion that included a 1.8 billion euro factory in the German state of Thuringia, and an even larger 7.3 billion euro factory in the Hungarian city of Debrecen.

But that plan unexpectedly came to a halt around March that year, possibly as China worried about the company’s growing dominance. CATL currently controls about 37% of the global EV market, or more than double the share of each of the next two largest players, China’s own BYD (1211.HK; 002594.SZ) and South Korea’s LG Energy (373220.KS), each with about 15%.

All offshore listings by Chinese companies must be approved by the nation’s securities regulator, which has shown it’s willing to withhold its approval in some cases. So, it’s a bit unclear if any concerns Beijing had about CATL’s original Swiss listing plan might also apply to – and potentially thwart – a Hong Kong listing.

In addition to the European facilities, CATL is also building a factory in the U.S. state of Michigan to supply local giant Ford (F.US), though that project was scaled back last year due to weaker-than-expected demand for EVs in the U.S. CATL has also reportedly considered a plant in Mexico, but that plan appears to be suspended, at least for now.

EV battery makers in general have had a rough time these last two years as they had to deal with soaring prices last year for lithium, one of their key components. At the same time, many of their EV-making customers were losing huge amounts of money and demanding big discounts in an effort to control costs.

As all that happened, CATL’s strong revenue growth of previous years went into reverse this year, including a 12% year-on-year decline to 92.2 billion yuan ($12.6 billion) in the third quarter. But the company was able to more than offset that with a 19% decline in its cost of revenue as lithium prices fell sharply. As a result, CATL was able to post a 26% increase in its third-quarter profit to 13.1 billion yuan.

The company’s ability to remain consistently profitable throughout all the recent industry turmoil is one of its biggest selling points, setting it apart from most of its peers. That should help it to attract investors to a potential Hong Kong IPO and make the $5 billion fundraising target easily attainable – if China’s securities regulator signs off on the deal.

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