Tianqi Lithium Set to Raise US$1 Billion in Hong Kong IPO

Top lithium producer Tianqi Lithium (SZSE:002466) is seeking to raise up to US$1 billion in an initial public offering (IPO) in Hong Kong to fund its recent purchase of a 24-percent stake in SQM (NYSE:SQM).

The Chinese company filed plans to list on the Hong Kong Stock Exchange on Friday (August 17). In the prospectus, Tianqi says 90 percent of the listing proceeds will be used to partially repay debt for the US$4.07-billion SQM deal.

After the purchase was announced in May, concerns about Tianqi’s dominance of the global lithium market increased. As a result, Chile’s competition authority, FNE, opened an investigation in June, which could delay the approval of the transaction.

Despite this move, Tianqi, which has hired CLSA and Morgan Stanley (NYSE:MS) as co-sponsors for the listing, is expecting to close the IPO in Hong Kong later this year, Reuters reported.

However, sources told the news outlet that the final deal size could be smaller than US$1 billion due to a steep drop in lithium carbonate prices.

But according Benchmark Mineral Intelligence Senior Analyst Andrew Miller, the decline in Chinese lithium carbonate prices is seen as an early correction to the market in the Asian country, which will go through several phases of growth over the next decade.

“We urge caution to view the price downturn in Chinese carbonate as the story for all lithium, because it is not,” the analyst said in a research note.

“The growth of anything, let alone an industry that is increasing seven-fold in the next ten years, is not linear. There will bumps in the road as each part of the battery supply chain — from lithium mine to chemical plant to cathode and battery manufacturing — builds out,” Miller explained.

“This will not happen entirely in unison and as a result the road will not be smooth, but the trajectory remains the same,” he added.

Benchmark analysts are not the only ones that expect lithium demand to grow in the coming decade. In its prospectus, Tianqi quotes data from consultancy firm Roskill, which forecasts that demand for lithium will grow by 19.8 percent a year up to 2027 due to growing sales of electric cars and greater of use of batteries for storage of renewable energy.

Tianqi currently mines lithium at the Greenbushes hard-rock mine in Australia, the largest lithium mine in the world, primarily for export to China.

However, the Chinese miner aims to expand its business into Northeast Asia and Europe, Tianqi says in its prospectus. In fact, it plans to “enter into medium- to long-term supply contracts with industry leading international customers, which have stringent requirements on product quality and consistency with strict accreditation processes.”

Earlier this year, another Chinese top lithium producer, Ganfeng Lithium (SZSE:002460), also announced plans to also raise up to US$1 billion in a Hong Kong IPO.

On Monday, shares of Tianqi were trading up 3.74 percent on the Shenzhen Stock Exchange at CNY 39.08. The company’s share price has declined more than 26 percent year-to-date.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.