China’s cleantech sector has been attracting a lot of investor attention with several new funds raised to focus on it. How will yours be different?
Our new fund is a RMB fund. It has a dual currency structure. We can raise money offshore and bring money onshore, we can also raise money domestically and therefore also exit on the domestic stock market, for example Shenzhen and Shanghai. There are a number of reasons why we have done this. First of all, it is a competitive positioning in that if you don’t have RMB to invest in China today, a lot of Chinese companies will not talk to you. The second thing is that in this fund, the Chinese government alongside Origo is the anchor LP. We have central and local approval to launch the fund.
Do you feel the Chinese cleantech sector is getting crowded?
I think it’s true that while there’s been more attention and more funds have been raised to focus on this area, [but] it is not as crowded as the other sectors that have been looked at for years. Cleantech is still a growth sector and it is still developing in China. Competition is certainly heating up, but it is not saturated. China is still climbing the cleantech curve.
What subset of cleantech are you excited about?
Water, lithium batteries and recycling in particular. If you look at water infrastructure, that sector really hasn’t started. But if China is going to fulfil its water needs, it’s going to have to build an extensive water infrastructure. If you look at all the floods and droughts this summer, there’s a massive programme coming online where the Chinese government plans to invest in flood diversion and irrigation. There’s a massive spending programme coming in water. And the other thing is electric vehicles, we think that that industry really has yet to take off. I think the solar, wind sectors are over-invested, have over-capacity and are by and large dependant on government subsidies to survive. Those sectors I find highly unattractive.
Have your Mongolian investments been performing to expectation?
It’s a mix. With Kincora Copper, which we invested in 2010, we took a 25 percent equity position in the copper exploration company. Their main asset at that time was a license which had previously been owned and drilled by Ivanhoe Mines located very close to Oyu Tolgoi. In July this year we reversed our full equity position in Kincora as well as an option to take control over the Mongolian copper company into a shell on the Toronto Stock Exchange. In the process we were not only able to revalue our position 3x higher than our initial investment, but we also raised about $15 million Canadian dollars to continue drilling on the license. And that company since listing has traded up significantly, so the net return for us has been spectacular in such a very short period, and I should note, in a market which has been very difficult.
We have two exits where we sold the initial investment and ownership position back to the company or the founders of the company. The challenge when you invest in Mongolia is two things. One is, if you don’t like what you see or don’t find what you’re looking for, how do you get out? If you don’t have that prearranged, you are not going to get out. So in two cases we had this prearranged. We weren’t excited about the progress and decided to put the position back to the founders. It doesn’t mean the companies won’t succeed, it just means in the time we were there, we didn’t see the potential we were hoping for. And similarly if you do find what you hope is there, if you do see significant upside, you need to have prearranged a way to take control. We had the option to go from 25 percent to 75 percent, and we had agreed at a price to do that at the time of the investment, not at the time of getting great results because then, it’s too late.