In a world that has never been more aware of climate change, law firms are taking steps to reduce their carbon footprint and minimise environmental impacts as part of corporate social responsibility initiatives. “There has been a sharp increase in public awareness and interest in the green energy sector,” says Baker & McKenzie partner, Beatrice Schaffrath, co-head of the firm’s environmental and climate change practice in China. “Law firms are increasingly aware of climate-change issues, both from a business perspective as well as from a day-to-day operational perspective.”
Baker & McKenzie’s China offices have undertaken a number of environmentally-focused initiatives, including recycling measures like increased use and collection of recycled materials; an energy efficiency program with a focus on energy conservation and smarter use of electricity and equipment; and participation in environmental conservation activities like a tree-planting day.
“Another substantive impact that law firms can have is in using their legal skills to assist with the development of best practices globally, in policy formation, in the establishment and framing of regulatory responses, and in establishing market mechanisms,” Schaffrath says. Driven by government policies to tackle climate change, the green technology industry is burgeoning, attracting billions of dollars of investments. Law firms have been increasingly busy with projects and transactions in this sector and, therefore, have become part of a driving force in making the green energy revolution happen.
Over the past 18 months, a majority of the leading transactional firms have reported a significant increase in instructions related to green energy, ranging from solar power, wind farm and hydroelectric to clean development mechanism (CDM) projects. “There is definitely an increase in renewable energy investment, mostly driven by the government being very proactive in this area,” says Gide Loyrette Nouel’s Beijing senior associate, Sarah Stokoe. “Part of the US$586bn economic stimulus plan announced last year will be directed at renewable energy projects including wind and solar power, so it's an exciting time for those involved in the sector.”
Baker’s Schaffrath has acted on many green energy sector projects and transactions, and holds a more measured perspective on development of the practices in China. “Investor interest in the sector has been high, but those investors are often challenged by the ROI aspects of the green energy projects they are considering,” Schaffrath says. “In the past we have seen a steady and progressive increase in investor interest, driven in large part by the enhanced financial prospects of a project which is, or has the potential to be, a project certified pursuant to the CDM under the Kyoto Protocol.”
Go green for business
In recent months, mainland-based clean energy companies have been the shining lights in a relatively quieter market compared to a year ago. A number have raised capital through an IPO or private placement, while some have completed M&A deals. Zhongjiang-based clean energy company, Amber Energy, recently completed its public offering and share placement in Hong Kong. Its IPO was hugely oversubscribed, making it the fourth-most oversubscribed offering in the history of the Hong Kong Stock Exchange.
“The success of this IPO is another stride towards a thriving clean energy market, a priority sector with vast opportunities for many investors in China today,” says head of DLA Piper's China capital markets practice, Liu Wei.
Shanghai-based Comtec, a leading solar silicon material manufacturer, is reportedly to raise US$150m from its IPO scheduled at the end of 2009. In July, Hong Kong-listed GCL-Poly Energy, a leading integrated green energy company, acquired Jiangsu Zhongneng Polysilicon Technology Development, one of the world's leading suppliers of polysilicon and wafers to companies operating in the solar industry.
Upon completion of the acquisition valued at US$3.4bn, GCL-Poly will become the first Hong Kong-listed large-scale polysilicon manufacturer and one of the world’s five largest polysilicon suppliers. “There is no question that there will be a consolidation in the solar power industry generally. In addition to M&A, we would expect there will be issues of intellectual property and lots of finance work as the industry expands,” says partner and head of Milbank's global securities group, Douglas Tanner, who led the team that represented the target company.
Leading domestic firms have also recognised the opportunity in the green energy market, particularly those who have worked closely with investment banks and private equity and venture capital funds. Zhong Lun recently teamed up with Baker & McKenzie and advised Zhaoheng Hydropower in its US$57.5m capital raising, led by Olympus Capital Holdings Asia.
The firm has gained tremendous exposure by simply following the footprint of its investment bank and PE clients. “Affected by the GFC, PE investors are more cautious in doing deals. However, we have seen an increase in investor activities and deal flows in recent months. [The] green energy sector has certainly been gaining lots of attention,” says partner, Gong Lefan.
He attributes the investment momentum in the sector to recent government policy initiatives and the stimulus package, as well as the rise of domestic clean energy and technology companies. “Investment in this sector not only makes [a] positive impact on the environment and economy, but also makes perfect business sense. Not surprisingly, PE and venture capitalist investors and investment banks have tremendous interest in it,” Lefan says.
Global Law Office is another firm that has experienced a sharp increase in the volume of investment in this sector. The firm has represented CDH in its investment in LDK Solar, which completed its IPO on the New York Stock Exchange. It also acted for New Horizon in its investment in Gold Wind Technology, completing its IPO on the Shezhen Stock Exchange. It is currently involved with ET Solar's IPO plan.
“Green energy projects are very popular in the capital markets, and we expect related work to become a more important part of our firm’s practice,” says partner, George Niu. The central government reaffirmed its commitment to create a green energy path to prosperity. It announced in May that it will invest more than RMB2 trillion in renewable energy sources, as part of its new energy industry stimulus plan. The demand for legal expertise in relevant areas will definitely rise.
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