China’s Tsingshan Holding Group plans to list its battery unit in Hong Kong later this year, in an initial public offering that would begin to lift the veil on the private business empire of Xiang Guangda, the founder who a year ago brought global nickel trading to its knees.
Tsingshan is the world’s largest producer of nickel and stainless steel and Xiang, who is nicknamed “the alchemist” for his ingenuity in metal processing, made a huge bet on falling nickel prices that backfired in March last year. It brought his business empire close to collapse and prompted the London Metal Exchange to suspend trading of the metal for eight days.
A year on, Xiang is preparing a different kind of bet, with ambitious plans to expand into high-grade nickel and lithium, and for his company’s integration of the raw materials into its own batteries for electric vehicles.
The REPT Battero Energy IPO would represent the first time the 64-year-old has taken a company public and been required to make disclosures about a metals conglomerate that has remained largely secretive since its inception in 1988.
Tapping China and Indonesia, Tsingshan dominates the global nickel market, producing 600,000 tonnes in 2021 and almost 900,000 tonnes last year, equivalent to 28 per cent of global supply. Its share is set to rise to a third next year, according to forecasts by BMO analysts. That strength in a key ingredient in lithium-ion batteries for electric vehicles, along with backing from state-owned carmaker SAIC Motor, has raised hopes that REPT can grow into a top-tier battery producer.
Morgan Stanley and Citic Securities are joint sponsors of the IPO, according to a prospectus. The flotation could take place by June, said a person familiar with the matter. REPT’s last funding round in September raised about Rmb5.6bn ($808mn) for a valuation of Rmb30.4bn, the person added.
Revenues for the subsidiary, which was established in October 2017, nearly doubled year on year in the first half of 2022 to Rmb4.02bn. While still lossmaking, its annual battery production reached 32.7 gigawatt-hours last September, equivalent to 6 per cent of Chinese capacity, according to data from China Industry Technology Innovation Strategic Alliance For Electric Vehicle.
Despite the chaos caused last year in the global nickel market, Xiang seems to have largely escaped censure in China, a sign of the key role played by the metal in the critical industry for electric vehicles. “The importance of this material to the Chinese economy shouldn’t be underestimated,” said one trading executive.
Tsingshan had taken massive short positions, betting that the nickel price would fall based on knowledge of the growing size of its own output. That backfired when fears of sanctions on Russia caused nickel prices to surge and the company became the target of a short squeeze.
Xiang needed to secure high-purity nickel to close his position as he struggled to meet soaring demands for cash to cover lossmaking positions when nickel hit $100,000 a tonne last March.
In the depths of the crisis a year ago, Beijing made a gesture of support, with a senior government official offering Xiang a bailout swap of high-quality nickel from state reserves for Tsingshan’s lower-grade nickel, one person close to the company said. He did not take up the offer and the LME’s cancellation of billions of dollars worth of nickel trades ultimately helped Tsingshan escape huge losses.
Tsingshan has since disbanded its internal futures team, the person added, citing the loss incurred — believed by bankers to be more than $1bn — as merely “a tuition it needs to pay” versus estimated 2022 profits of $7.2bn-$8.6bn. It now only has a small short position traded on LME, according to two people familiar with the matter, while some nickel traders still grumble that Xiang “got away with it”.
However, last August, Tsingshan was reported to be considering selling Indonesian assets in nickel pig iron — a lower-grade form of the metal — and stainless steel to its Chinese state-backed rival Baowu Steel, which analysts viewed would be a forced sale as a reprimand from Beijing. It remains unclear though whether any such deal has materialised.
“From the perspective of Beijing, having a company that has been internationally successful at bringing nickel units is more important than a fight between it and state-owned companies,” said one person close to Tsingshan.
The engineering breakthroughs that earned Xiang the moniker “the alchemist” saw his company transform global nickel supplies and the Indonesian economy in little more than a decade.
In the mid-2000s, Tsingshan developed a breakthrough steelmaking process that used nickel pig iron. That prompted Xiang to expand into Indonesia to solve nickel shortages holding back Chinese stainless steel production. Tsingshan then became the first company to produce the low-grade ferronickel from Indonesian ore in the country in 2015 and has since found an economical way to convert nickel pig iron into a higher-grade intermediary called matte, Indonesian exports of which climbed threefold last year, according to CRU, a consultancy.
Tsingshan now plans to build, with Australia’s Nickel Industries, a new breed of conversion plant for $2.3bn that can produce nickel sulphate and high-purity plates. This would supply battery-grade chemicals to REPT and other automakers, while producing high-grade nickel that can be delivered against LME positions — something Xiang lacked last March.
Markus Moll, managing director of SMR, a steel market research firm, says that Xiang is unique in his ability “not only to control the raw materials, it’s also whatever he builds he does it at a lower cost than all his competitors inside and outside China”.
Competitors say that Tsingshan’s biggest challenges to supplying large western automakers are now the environmental and social impact of nickel mining and processing in Indonesia.
“We thought they could improve on their environmental and safety standards,” said one industry executive. “They realise they need to clean up their supply chain if they’re going to be taken seriously.”
Additional reporting by Andy Lin in Hong Kong