CLSA: Clean tech still viable strategy in China

CLSA Capital Partners has invested $10 million into Beijing-based Scinor Water alongside existing investor Kleiner Perkins Caufield Byers, according to a company statement.

Scinor is a water research, development and manufacturing company using a number of universities in China to develop low-cost, sophisticated clean water technology and equipment. The company was founded by experienced water entrepreneurs Hongmei Wu and Huoqi Chen, who previously launched and sold four water-related companies.

CLSA invested from its $115 million Clean Resources Asia Growth Fund, marking its fourth deal in Asia. The fund now has three water-related portfolio companies, taking advantage of the acute water crisis in China, managing director of CLSA’s clean resources fund Peter Kennedy told Private Equity International. China has less than 7 percent of the world’s water, but 20 percent of the population, he says. 

Many private equity firms have invested in China’s clean resources sector via clean energy over recent years, but were disappointed with returns. Kennedy explains clean tech funds should focus on demand-driven businesses rather than those heavily influenced by government policy.

He said, “Cleaner energy has been a pretty difficult market globally. We’ve seen some niche-type applications that have worked out well for some people, but we’ve stayed away from clean energy and gone to areas less policy driven [where] market needs are demanding cleaner approaches, including the water space, which is an acute [problem], as is sustainable agriculture.”

Clean energy is often subsidised by the government and investors can be restrained by mandates or quotas in the sector. However, given the need for cleaner water in China, the government has increased tariffs on cleaner water to make investment in the sector more commercially viable, Kennedy said.

“Residential tariffs are still well-below cost in a lot of different areas and are politically sensitive, but the acute nature of the problem has allowed the government to at least let industrial and commercial tariffs start to approach market rates where it is economical to put in waste water treatment, which is very profitable.”

CLSA’s $115 million Clean Resources Asia Growth Fund was launched in late 2009 and is now 50 percent deployed, according to the firm. It has made four investments and plans two to three more over the course of 2013.

The fund is one of CLSA Capital Partners various private equity vehicles focused on Asia. The Hong Kong-based firm is the alternative asset management arm of CLSA Asia Pacific Markets and currently has $2.6 billion in assets under management, according to PEI’s Research & Analytics division.