China Everbright Sees More Acquisitions Amid Water Cleanup

  • Company expects opportunities as industry landscape changes
  • Dalian to be used as a base for further expansion in region

China Everbright International Ltd., a developer of water and environmental protection projects, expects mergers and acquisitions in China’s wastewater treatment sector to pick up speed as the world’s most populous nation tackles worsening water pollution.

“We see such opportunities quickly becoming mature in the industry, and people will see sweeping changes to the wastewater treatment landscape from this year on,” Chen Xiaoping, chief executive officer of Everbright International, said in a Sept. 7 interview in Hong Kong.

China’s government is embroiled in efforts to clean up the environment, declaring a war on smog and promising broad measures to combat ecological degradation. According to a report released by China’s Finance Ministry in 2014, the nation spent 180 billion yuan ($28 billion) on energy conservation and environmental protection in 2013 alone.

On Aug. 28, China Everbright’s Singapore-listed water treatment unit, China Everbright Water Ltd., paid 800 million yuan for all of Dalian Dongda Water Co. from the Dongda Group Co.

The deal is the first major purchase after Everbright Water raised about HK$3 billion ($387 million) in the first half through bank loans and private share placements to International Finance Corp., the World Bank’s private-sector financing arm, and Dalvey Asset Holding Ltd., a subsidiary of RRJ Capital’s Master Fund II.

Buying Opportunities

China’s move to let private companies play a larger role in water-treatment control means buying opportunities for water companies with the appropriate capabilities, Chen said.

“We have the capacity to buy those assets and improve their margins by improving water quality to higher standards quickly, ” Chen said. “It’s beneficial to those companies, local governments, to us and our shareholders.”

Everbright International plans to use Dalian, the only sea port in China’s northeast region, as a base for further expansion through the region, Chen said.

“We’ve seen the opportunities in the industry and we want to build up our portfolios quickly region by region,” Chen said.

The size of any acquisition target isn’t as important as whether a project can provide stable long-term return, Chen said.

Processing Capacity

China currently has the capacity to treat about 160 million tons to 170 million tons of waste water a day with the majority processed by locally-owned unlisted companies, according to Chen.

Everbright Water, after acquiring Dongda’s assets, processes about 4.6 million tons of water a day.

China ranked 67th for wastewater treatment in the 2014 Environmental Performance Index, a gauge of how well a country treats wastewater from households and industrial sources before release into the environment.

The Environmental Performance Index is a joint project between the Yale Center for Environmental Law & Policy and the Center for International Earth Science Information Network at Columbia University.

“Growth potential is huge,” Chen says. “It will all come down to who has the money and technology to deliver the right kind of water product that the government requires.”

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