Rush to be green not just about environment
Hong Kong investors are set to invest more in environmental businesses, either through shares in listed companies or in trendy 'green' pension funds.
Suddenly, many Hong Kong-listed companies are going green by investing heavily in environmental projects in the city and the mainland, aiming to cash in on the governments' focus and incentives to curb worsening pollution.
The launching of the city's first green pension fund, which invests in companies with good financial performance and strong environment interest, spiced up the green frenzy.
While listed developers plan to add renewable energy projects to their portfolios, other companies are leveraging their expertise in manufacturing to make higher-margin, environmentally friendly products, such as glass for solar energy systems.
Analysts observed that announcements of these projects had boosted companies' share prices temporarily, but they were advising investors to be alert to whether the profitability and prospects of these projects were as rosy as painted by the companies.
While the views of stockbrokers and individual investors vary, green groups seem unimpressed by the companies' moves and warn that the projects could create other types of pollution. They said some companies seemed to have hijacked the term 'environmental projects' to grab public attention while their underlying businesses were actually 'nothing special'.
Global Green Tech Group, a manufacturer of detergent, fabric softeners and skincare products, claims it has invented a technology that converts plastics into various forms of fuel.
It wants to cash in on Hong Kong's supply of old tyres, with the government considering paying recyclers $90 a tyre to solve its landfill problem. Global Green Tech, which is investing $300 million in a Yuen Long processing plant, posted a $223.3 million net profit last year, $91 million of which came from the disposal of a subsidiary.
Shareholders at mainland textile company Good Fellow Group recently approved the $560 million acquisition of an ecological forestry company, which claims to possess technology that would make trees grow faster.
Chairman Ng Leung-ho expects the new business, which involves tree planting in Shandong and Shanxi and supplies wood to paper-making companies, to contribute 80 per cent of the company's net profit and half of its revenue in two years.
Hong Kong Construction last year invested heavily in Heilongjiang wind generators as it looked for diversification. It plans to form joint ventures with more mainland and Hong Kong companies to develop wind farms in areas around Beijing
Xiwang Sugar Holdings, China's biggest glucose producer, is studying the feasibility of developing a source of renewable energy from alcohol, a by-product of glucose production. But such news has resulted in frenzied market trading, which has pushed share prices to what some analysts say are 'alarming' levels.
Chairman Wang Yong said Xiwang was waiting to see whether the central government would give concessions to the renewable energy industry. But he did say the market had been exaggerating the profitability of this potential new business.
Red chip China Everbright International, whose core businesses range from toll bridges to property investment, last month sold one of its office buildings for $122.1 million to fund the expansion of its environmental protection operations. It also announced it would raise $336.6 million from a top-up share placement.
It has budgeted one billion yuan for green projects this year, including solid-waste disposal and methane-to-energy projects in Suzhou, as well as a waste-water treatment project in Zibo, Shandong province.
Xinyi Glass Holdings, the mainland's largest exporter of vehicle glass, will invest 300 million yuan in manufacturing and selling glass for solar energy systems. However, on the day of this announcement last month, Xinyi shares fell 5.51 per cent on news of its possible issuance of new shares.
Kenny Tang Sing-hing, an associate director at Tung Tai Securities, said: 'I think some of these projects are actually unprofitable.'
He pointed to the Global Green Tech project, saying he expected the operating cost for converting plastics into fuels would be 'huge'.
'But environment-friendly products in general do offer higher margins for manufacturers because such products are trendy,' he said, adding that he expected companies developing environmentally sound products would become a trend.
Retail investor Katie Ng said she believed companies investing heavily in green projects were a good buy because the projects were likely to be backed by governments.
William Ko, a stockbroker at Celestial Securities, however, said: 'Environmental projects are normally unprofitable because of the high cost of research and development.'
Friends of the Earth environmental affairs manager Hahn Chu Hon-keung said some companies seemed to have hijacked the term 'environmental projects' and it remained to be seen whether the projects were actually friendly to the environment.
But he said the central government's determination to curb air pollution was providing good business opportunities for green projects, especially in solar energy and other renewable energies, because under the Kyoto Protocol, China had to increase the proportion of renewable energy from the existing 7 per cent to 15 per cent by 2020.
Mr Chu said mainland authorities had recently announced that achievements in environmental protection would be counted in evaluating the performance of officials. 'This provides good incentives for local governments in developing environmental businesses,' he said.
Mr Chu said Hong Kong companies lacked the competitive edge in environmental business because of insufficient funding for research and development.
Greenpeace campaign manager Tam Man-kei said while it was a good sign that more companies were developing green business, 'we should be very careful that these so-called green businesses are not green-washing the public's mind.'
Mr Tam pointed out that in October 2004, Greenpeace found that a battery division of Hong Kong-listed Gold Peak Industrial (Holdings) in Huizhou, Guangdong province, had been discharging waste water with high levels of cadmium that exceeded the safety standards of both Hong Kong and China, into the surrounding area.
'Health checks showed that hundreds of factory workers were suffering from high levels of toxin,' he said.
Meanwhile, American International Group and JP Morgan Chase have taken advantage of Hong Kong's worsening air pollution to start what they claim to be the territory's first green pension fund, according to Bloomberg.
The Green Fund, which will be managed by Credit Agricole Asset Management, invests in companies that protect and help sustain the environment and have good financial performance.
The world's best-performing green fund is the Merrill Lynch New Energy Technology fund, which invests globally in companies that focus on alternative energy or energy technology, such as Vestas Wind Systems, the world's biggest windmill maker by sales, and Solarworld, a German solar-cell maker, according to Bloomberg.
The fund surged 104 per cent in the past year, outperforming the 16 per cent gain in Morgan Stanley Capital International's World Index, which includes 1,790 emerging and developed-market stocks.
Global Green Tech Group, a manufacturer of detergent, fabric softeners and skincare products, will invest $300m in converting plastics into various forms of fuel.
Mainland textile company Good Fellow Group will acquire an ecological forestry company for $560m. Its new business involves tree planting in Shandong and Shanxi and supplying wood for paper manufacturers.
Hong Kong Construction last year invested in Heilongjiang wind power plants and plans to form joint ventures to develop windmills around Beijing.
Xinyi Glass, the mainland's largest exporter of vehicle glass, will invest 300m yuan in manufacturing and selling glass for solar energy systems.
Red chip China Everbright International, whose core businesses range from toll bridges to property investment, has budgeted 1b yuan for green projects this year, including solid-waste disposal and methane-to-energy projects in Suzhou, as well as a waste water treatment project in Zibo, Shandong.
Xiwang Sugar Holdings, China's biggest glucose producer, is studying how to develop sources of renewable energy from alcohol, a by-product of glucose production.