Ganfeng Lithium in dreadful Hong Kong debut, may bode ill for rival Tianqi

Ganfeng Lithium in dreadful Hong Kong debut, may bode ill for rival Tianqi

Thu, 11/10/2018 - 11:48

Electric vehicle sales may be surging in China, but that hasn't yet translated into an uplift in lithium prices with new supply hitting the market. Photo: Reuters

Ganfeng Lithium fell 20 per cent on its first day of trade in Hong Kong, a grim debut that follows a disappointing share sale and an ill wind for a planned listing by rival Tianqi Lithium.

Prices for lithium - a key ingredient in rechargeable batteries used in electric cars - have halved in China this year due to oversupply, hurting near-term earnings prospects for lithium producers. The longer term outlook is, however, brighter as Beijing actively promotes EVs to combat air pollution.

Wall Street's worst drubbing in eight months overnight also exacerbated the slide for Ganfeng, China's top producer of lithium by production capacity and a supplier to carmakers like Tesla and BMW.

Ganfeng chairman Li Liangbin put the blame for the share dive on stock market sell-offs around the world.

"As our company has a healthy and solid performance...we are confident that we can further improve our performance to reward our investors in Hong Kong," Mr Li said at the opening bell ceremony.

Shares in Ganfeng stood at HK$13.08 by the end of the morning session, far below its offer price of HK$16.50 - a level that was the bottom of the marketed range in a sale that raised $US421 million. The broader Hong Kong market was down 3.8 per cent.

The listing gives Ganfeng, which also trades in Shenzhen , a market value of roughly $US5 billion, not far off Tianqi which is the world's No. 2 by sales but has a market value of about $US5.5 billion.

Tianqi is hoping to raise as much as $US1 billion in its Hong Kong stock float, sources told Reuters in August.

It has grabbed more headlines than Ganfeng - building the world's biggest lithium processor in Western Australia and seeking to close a deal to buy a coveted 24 percent stake in Chile's SQM , the world's No. 2 producer of lithium.

Ganfeng plans to use the proceeds from its Hong Kong listing to acquire lithium resources and expand its production capacity of lithium metals, batteries, compounds and recycling.

The company made a net profit of 478.7 million yuan ($US69 million) in the second quarter of this year, up 33 per cent from the first quarter. Its 2017 revenue jumped 54 percent to 4.38 billion yuan.

Argonaut Securities metals and mining research analyst Helen Lau said the stock's performance was more a reflection of the sell-off in global markets and did not reflect the fundamentals of the company.

The retail portion was also under-subscribed, which put pressure on the stock as retail investors are very sensitive to market sentiment.

"It's not fully subscribed, so coupled with yesterday's decline in the U.S. market that spilled over into Hong Kong market so the whole market sentiment becomes very bad," Ms Lau said.

While Hong Kong is on track for a bumper year of listings, many such as online food delivery-to-ticketing services firm Meituan Dianping and hotpot chain Haidilao, have nevertheless fallen below their offer price, hit by weak markets.

Ganfeng could still raise as much as $US448 million if a greenshoe option is exercised within one month of the start of trading.