[Reuters Breakingviews] CATL’s $4 bln IPO offers trade truce reality check

By Katrina Hamlin

HONG KONG, May 14 (Reuters Breakingviews) - The world’s biggest IPO this year excludes U.S. onshore investors. The decision reduces geopolitical risks that loom over Chinese battery maker Contemporary Amperex Technology's 300750.SZ $4 billion Hong Kong debut. It also shields the issuer from potential legal headaches should the Sino-American relationship deteriorate. Yet the trick employed by Robin Zeng for the $158 billion company he founded won't be so easy for others to replicate.

CATL, already traded in Shenzhen, is excluding a group of investors that is typically vital for larger listings in the Asian financial centre. NetEase 9999.HK opted for a similar setup in a $3.1 billion follow-on issue in 2020; more recently, electric-car maker Nio 9866.HK did the same for a $500 million follow-on in March. It remains a rare move, however.

Zeng is making a logical choice for a company that has faced intense scrutiny stateside; Washington views batteries as a strategic technology. In January CATL was added to a U.S. government list of organisations that work with the Chinese military – a mistake, per CATL. Lawmakers even suggested JPMorgan and Bank of America ought not to underwrite the deal, though the duo remain among nine banks working on the issue. Including onshore U.S. funds would leave CATL vulnerable to litigious investors if fresh problems materialised.

Ultimately, the battery giant is able to draw on a strong Middle East connection. Petrodollar sovereign funds are increasing investments to Asia, a region still hungry for oil. The Kuwait Investment Authority, alongside Sinopec HK, each pledged to invest $500 million in the offering; All in, more than 20 cornerstone investors have committed $2.6 billion. Shares are already subscribed multiple times over, a source close to the deal told Breakingviews.

The Gulf has more than investments to offer to the People's Republic too. Chinese passenger-vehicle exports to the Middle East, including electric cars, jumped 61% last year, making it their fastest-growing market globally, per Alix Partners. It’s also becoming a key market for CATL's utility-scale energy storage business. The company started work on a $6 billion solar and battery project in the United Arab Emirates in January.

CATL's deal excluding a cohort of U.S. investors sends a powerful message about the potential future of Hong Kong, especially amid ongoing talk of U.S.-China financial decoupling. Other issuers may be tempted to try something similar with their offerings but CATL is an exceptional company with products in hot demand, and the deep pool of American capital is hard to replace.

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CONTEXT NEWS

Battery maker Contemporary Amperex Technology is aiming to raise at least $4 billion in its Hong Kong listing, according to a prospectus published on May 12.

More than 20 cornerstone investors, led by Sinopec and Kuwait Investment Authority, have subscribed to buy about $2.6 billion worth of CATL shares, the prospectus showed.

The offering will not be available to U.S. onshore investors.

Hong Kong's IPO market has languished