Affinity invests $360m in Towngas China

The transaction comprises 116.7 million new shares priced at HK$5.00 apiece and HK$2.22 billion in convertible bonds with a conversion price of HK$6.33 per share, according to a filing. Affinity will take a 13.3% stake in Towngas China on a fully diluted and converted basis.

The Hong Kong-listed company’s stock rose 14% to HK$5.15 ahead of the announcement on October 25, achieving a market capitalization of HK$15.7 billion. It will be renamed Towngas Smart Energy in recognition of the shift in strategy.

K.Y. Tang, Affinity’s founding chairman and managing partner, told a media briefing that ESG (environment, social, and governance) and sustainability had emerged as a new dimension to the firm’s investment approach over the past 10 years. This informed the search for opportunities in renewable energy, clean energy, and smart energy, although not via the greenfield route.

“We wanted to invest in a platform that has existing operating infrastructure in place and sufficient management resources that can execute on the strategy. And we wanted the platform to be sufficiently large so we can scale up rapidly,” Tang said. “More importantly, we didn’t want to do it alone. We wanted a trusted, reliable, and reputable partner already in the energy business and with a long operating experience in China. In Towngas we have that platform.”

He described the company as a “hidden gem” that has spent five years drawing up a detailed road map and execution strategy to transform from a pure-play city gas business into an integrated clean energy platform that operates on smart grids.

Established in 1862 as Hong Kong’s first public utility, Towngas entered the mainland market in 1994. Towngas China and its parent have 40 million residential customers and 400,000 industrial and commercial customers, and they claim to account for 10% of the overall city gas market.

Towngas China’s revenue reached HK$12.8 billion in 2020 – down slightly on the previous year – from 197 projects, primarily piped gas operations as well as some distributed energy systems, upstream, and midstream projects. Net profit rose from HK$1.51 billion to HK$1.65 billion.

The company established its smart energy business five years ago. The expansion plan has three core pillars: offering solar energy to existing commercial and industrial customers; expanding digital capabilities through cloud computing technology and smart energy management systems; and providing carbon auditing, asset management, and trading capabilities.

The primary targets are China’s 2,600 national and provincial level industrial parks, which account for 60% of the country’s annual carbon emissions.

At present, Towngas China works with 30 industrial parks, which have planned solar capacity of 2 gigawatts and planned investment of RMB7 billion ($1.1 billion). By 2025, it wants to reach 200, with planned solar capacity and investment rising to 15 GW and RMB58 billion. These parks generate 5% of annual national carbon emissions.

Affinity is making the investment from its fifth pan-Asian fund, which closed on $6 billion in 2018.

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• Topics
• Greater China
• Expansion
• PIPEs
• Industrials
• Cleantech
• China
• energy
• Affinity Equity Partners
• Cleantech