chinanewenergy.jpgThe biofuels boom continues and its most recent beneficiary is UK-listed China New Energy, which has raised up to $20m of new funds via the issue of convertible bonds.

China New Energy, based in Guangzhou, makes turnkey ethanol production equipment and it has supplied over 30 projects in China, producing not just fuel ethanol but also edible ethanol and acetic acid.

The business was spun out of the renewable energy division of China's Academy of Science , the leading government-funded centre in China for the development of renewable energy technology.

As a result, CNE claims that it continues to receive “considerable support” from the Chinese government, which wants to reduce the country's heavy dependence on oil. The government has enacted various laws and regulations encouraging the use of
renewable energy, one of which states that vehicle fuel must comprise at least 10% fuel ethanol in 11 of the 33 provinces in China.

The CNE fund-raising comes at a time when China's fast-growing biofuels sector is going through a potentially tricky transition. Already, some producers have chosen to suspend production because of the combination of the high cost of corn — the main feedstock for ethanol — and low ethanol prices due to oversupply.

The industry thus risks becoming victim of its very success with too many small producers and growing fears that arable land is being diverted to grow biomass instead of food. The government seems set to take tighter control of the sector.

CNE is, to a certain extent, insulated from these issues as it simply supplies the equipment used to make ethanol. In addition, it is also looking to international markets for growth and the fund-raising is designed to help that export drive. CNE's chief executive Zhaoxing Tang said:

The new capital will be used to expand our international operations, where we are seeing demand from a number of countries, and to make acquisitions of businesses using our technology and the biofuel to produce speciality chemicals.”

The investor in the convertible bonds is an alternative investment management fund based in the US with approximately US$15 billion under management.

Shares in CNE started trading on the UK's Plus market — a junior market for high-growth companies — last September. At that time, London Asia Capital Private Equity, a UK-listed investment fund, invested £2.2 million for a 25% stake. The new investment values CNE at approximately £50m — not a bad return on LACPE's initial investment.

See this EngagingChina story for more on the China's ethanol industry and this story for more on LACPE.


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