The Lithium Cartel Is Self-Destructing – by David Fickling (Bloomberg News – October 10, 2018)

China’s incentive to keep the electric-battery metal cheap has soured investors on Ganfeng’s Hong Kong IPO.

If that wasn’t bad enough, look at what just happened to Ganfeng Lithium Co., the world’s second-biggest producer. Its Hong Kong initial public offering has been priced at HK$16.50 a share, the company announced Wednesday, at the bottom of a target range that went as high as HK$26.50.

Even at those prices investors weren’t biting, with the slice available to Hong Kong investors about 40 percent undersubscribed. That’s arguably not surprising, given the run of IPO flops over the past year, including online car-sales platform Yixin Group Ltd. and smartphone maker Xiaomi Corp.

Still, it left a hefty share of the issue in the hands of LG Chem Ltd., Samsung SDI Co. and four Chinese state-linked companies who were acting as cornerstone investors and had subscribed for a fixed dollar amount, plus an additional 2 million shares which were placed with a unit of state-owned Guotai Junan International Holdings Ltd.

Valuations of lithium companies have been sliding all year, with enterprise value-to-Ebitda multiples on Albemarle Corp., FMC Corp. and Tianqi Lithium Corp. at about half their levels at the start of the year.

That doesn’t explain all of the weakness, though: At the offer price, Ganfeng is valued at about 9.3 times 2017 Ebitda, compared with 10.3 at Albemarle and Tianqi and 17.9 at FMC.

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