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Indonesian nickel is making China’s Lygend Resources hungry for a successful IPO

Autor: Article based upon analysis from Reuters Breakingviews | Link: Nickel IPO puts Jakarta at centre of China EV boom
Timp de citit: 2 minute

Price of nickel jumped 20% since the beginning of the year, bringing very healthy profits for companies in the field. Take China’s Lygend Resources & Technology for example, who’s bottom line grew to 2.3 billion yuan in the first half of 2022.

The company is trading the heavy metal for a business, but also making produces out of it.

Since nickel is doing that good, Lygend’s revenue more than doubled against the first half of last year, to nearly 10 billion yuan, around $1.4 billion, according to Reuters.

These figures seem to be reason enough for the Chinese trader to expand its activity to Indonesia, who posesses around a fifth of the world’s nickel resources.

That accounted for nearly 40% of ore unearthed last year. Lygend is now looking to raise up to $594 million in an IPO for its expansion.

Doing business in Indonesia would allow it to export rich quantities of the metal to China, putting Jakarta front and center Hong Kong’s electric-car boom.

According to the U. S. Geological Survey, China is the world’s largest maker and buyer of electric cars, but has less than 2% of known nickel reserves.

Indonesia is a gem, but nothing comes easy, for the endeavor carries political risks.

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In the first year of Covid-19, President Joko Widodo hastened an export ban on nickel ore, forcing the industry to bring smelting onshore.

That affected Lygend’ sales that fell 17% in 2020 before the company began to process the metal onshore with its local partner.

Even if business has bounced back since, there are red flags in the exports department, where a ban may be expanded to include products refined from the ore.

All these considered, Lygend seeks up to $593 million in Hong Kong IPO, selling 232.54 million shares in the deal.

Its value is, at the midpoint of its marketed price range, 5.5 times this year’s annualized earnings if the same growth happens in the second half of the year.

That’s just over $4 billion, or almost, then again, roughly 5.5 times higher than what’s looking to borrow.

Hong Kong listings by electric-car maker Zhejiang Leapmotor Technology and battery maker produced lackluster debuts.

Also, Hang Seng Index rose 19% since the start of November, but is still down a quarter this year. It seems that Lygend has some struggles ahead.