MoneyTree TM China Renewable and Cleantech Investment Report

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1 MoneyTree TM China Renewable and Cleantech Investment Report Q 16 Data source: ZeroIPO Research

Policies and Regulations In Q 16, a great number of policies and regulations for the China renewable and cleantech industry were released, with about half focused on environmental protection.

2 Policies and Regulations In Q 16, a great number of policies and regulations for the China renewable and cleantech industry were released, with about half focused on environmental protection. Policies and regulations have also been introduced to provide guidance on the One Belt, One Road initiative and the national strategy of Made in China, which broaden the market and development prospects of the renewable and cleantech industry. In early April, the National Energy Administration (NEA) issued Guiding Opinions on Energy Development for 16 to clarify the direction of energy-related work and expedite the pace of energy restructuring as well as the promotion of industries that have smaller energy footprints. The Opinions outline key tasks and objectives to be achieved in 16, which cover energy consumption, supply, efficiency, institutional innovation, nonfossil energy sources, natural gas utilisation, clean and green development and utilisation of coal, prevention and control of atmospheric pollution, and more. This extensive list indicates the government is making great efforts to promote the development of renewable energy. The Energy Technology Revolutionary Innovation Action Plan (16-) (the Action Plan ) was issued on 7 April to expound key tasks and primary targets in energy technology innovation for the near future. While adhering to the main policy line of supply-side structural reform, the Action Plan covers 1 key tasks involving solar power, wind electricity, hydrogen and fuel cell technology, the energy Internet and modern grid technology. It also lays out a specific roadmap for action on major innovations in the energy technology revolution, providing guiding plans for advanced energy storage and microgrid technology innovation. In response to the national Made in China strategy, the National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology, and the NEA jointly issued the Made in China Energy Equipment Implementation Plan on June. The Action Plan explicitly states that efforts should be focused on safeguarding energy supply security, promoting clean energy development and driving clean and efficient utilisation of fossil fuel-based energy. The Action will be launched in 1 areas of energy equipment innovation, with a focus on the most urgent areas of energy industry development: nuclear power equipment for third generation nuclear power, small modular reactors and advanced fuels, oil and gas exploration equipment for shale gas as well as deep water oil and gas, intelligent green coal mining and dressing equipment, gas turbines, intelligent grids, the energy Internet and other advanced electronic equipment. It also calls for expanding financial support and encouraging capital operations to drive transformation of the energy equipment manufacturing industry from simple technology MoneyTree TM China Renewable and Cleantech Investment Report

3 importing to one characterised by talent introduction, outbound M&A, and collaborative R&D. It further calls for supporting advanced technologies and top talents, studying the use of industry funds and proceeds from state-owned capital, promoting the expansion of energy equipment with superior production capacity into foreign markets, and supporting overseas investment and M&A. Moreover, the NEA is actively encouraging social capital investment in the energy industry and promoting the Public-Private Partnership ( PPP ) approach. It is strengthening government investment and subsidies in underdeveloped areas and improving the level of public service in the energy area, all of which will help usher in a new era for the industry. On 1 April, the NEA issued a bulletin on Actively Popularizing the Public-Private Partnership Model in the Energy Field. Officials in charge of the initiative say that the PPP model is conducive to reforming the public services provision system in the new energy area, broadening investment and financing channels, fully mobilising social capital to participate in project construction in the energy sector, and improving the level of public services so as to meet the public s needs for safe, reliable and clean supplies of energy. Using renewable energy instead of fossil fuels helps reduce atmospheric pollution, improve the quality of life and generate widespread gains and social benefits for the public. On 16 May, the NDRC, along with eight relevant departments, issued Guidance on Promoting Substitution with Electrical Energy (the Guidance ). Since the cost of switching to renewable energy is too high for ordinary investment returns to cover, policy support is required to change the status quo. In terms of equipment investment, the Guidance encourages different localities to use special air pollution prevention and control project funds and other funding channels to support replacement with electricity. The Guidance also encourages organisations undertaking electricity substitution projects to apply for enterprise bonds and lowinterest loans as well as embrace the PPP model to solve the financing problem. Special policies pertinent to other clean energy technology sub-sectors have been released one after the other by relevant departments. On April, the NDRC issued Administrative Measures on Central Budgetary Investments in Construction of Urban Sewage and Waste Disposal Facilities. These Measures further enhance and standardise central budgetary investments in the construction of urban sewage and waste disposal facilities to ensure more efficient use of central funds. Subsequently, Measures for Cleaner Production Review were issued, detailing the scope, implementation, organisation management, rewards and penalties associated with the regulatory review process. Compared with the Interim Measures for Cleaner Production Review, the new measures set higher requirements regarding which firms are subject to mandatory reviews of cleaner production. For instance, enterprises that exceed the quota for energy consumption per unit of product constitute high-energy-consumption enterprises and are subject to cleaner production review. The new measures will better guide local governments and enterprises carrying out cleaner production reviews, leading to reduced consumption of energy and materials and improved resource utilisation efficiency. Soil pollution tends to be a hidden problem. Moreover, soil pollution control has suffered from a late start and weak foundation. To address the problem, the State Council issued Action Plan on Soil Pollution Prevention and Control on 1 May. Prepared in light of China s national conditions and stage of development, it seeks to improve soil quality and safeguard agricultural product quality and human habitation safety; it adheres to the principles of protection first, prevention foremost, and controlling risks. The Action Plan focuses on key areas, industries and pollutants, implements governance according to categories, uses and stages, strictly controls the new addition of pollutants and gradually reduces their stocks, and forms a soil pollution control system that is government-led, participated in by the public and supervised by society, with responsibilities borne by enterprises. The Action Plan also states that budgetary funds should be fully leveraged by means of the PPP model to mobilise more private sector funds for soil pollution control. It further calls for the intensive development of green finance to fully exploit the guidance provided by financial institutions. In addition, it provides support for significant soil pollution control projects, and encourages eligible soil pollution control and restoration enterprises to issue shares. In addition, the plan recommends exploring bond issues and pilot projects in regions pioneering in comprehensive soil pollution control, as well as conducting pilots regarding mandatory liability insurance for environmental pollution on the part of key industries and enterprises. MoneyTree TM China Renewable and Cleantech Investment Report

4 Analysis of PE/VC Investment in the China Renewable and Cleantech Industry Scale of Investment In Q 16, there were a total of investment deals in the China renewable and cleantech industry, with a disclosed investment value of USD 96 million. Of the deals that disclosed the investment amount, the average investment value was USD 1.1 million. The companies that succeeded in obtaining financing included five traditionally listed companies and 14 companies listed on the National Equities Exchange and Quotations (NEEQ). The number of investment deals declined by.4% on a year-on-year basis, but was up 1.9% on a quarter-on-quarter basis. On the other hand, investment value soared by 1.9% on a year-on-year basis, but was down 4.% on a quarter-on-quarter basis. PE-backed company listings saw a market boom in Q 16, with five A-share companies in the environmental protection or new energy sector completing private placements. Meanwhile, PE investments seemed to be increasingly popular in the NEEQ market. Although the number of investment deals in Q remained the same as in Q1, investment value soared by 89.4%. Chart 1 Investment in the China renewable and cleantech industry from 14 to Q Q 16Q1 1Q4 1Q 1Q 1Q1 14Q4 14Q 14Q 14Q Investment value(us$m) Number of investment deals In terms of investment value, PIPE accounted for 64.4% of China renewable and cleantech investment rounds in Q, due to the high value of private placement into A-share listed companies, which reached USD 1. million, and to the large number of private placements in the quarter, during which five listed companies completed their private placements. In contrast, the proportions taken by A, B and C rounds of investment presented a gradually declining trend (without considering undisclosed deals in the investment round). Chart Investment round in the China renewable and cleantech industry in Q 16 (by number of deals) 9.7% 14.% %.7% 1.9% 14 4.% A B C NEEQ PE PIPE Chart Investment round in the China renewable and cleantech industry in Q 16 (by investment value, US$ M) % % % 1..4% Investment Round Statistics In terms of deal numbers, private placement in enterprises listed on the relatively mature NEEQ and mainboard accounted for 4.% of the Q 16 investment rounds in China renewable and cleantech, reflecting investors great confidence in growth-oriented firms in the renewable and cleantech industry. In addition, since a larger number of deals were not disclosed in Q and all the target enterprises were non-listed companies, one cannot conclude that investors interest in seed stage renewable and cleantech enterprises is cooling down %, % A B C NEEQ PE PIPE 4 MoneyTree TM China Renewable and Cleantech Investment Report

5 Investment Stage Analysis In Q 16, investment in the China renewable and cleantech industry was mainly in the expansion and mature stages, much the same as in Q1. From the perspective of both deal number and investment value, relatively mature enterprises listed on NEEQ and mainboard were the main targets of investments in the renewable and cleantech industry in Q. Note that funds raised by these relatively mature enterprises were primarily invested in new projects and new businesses focusing on areas like sewage treatment, construction of solar photovoltaic plants, and kitchen waste processing. Chart 4 Investment stages in the China (by number of deals) 7.%.7% Investment Industry Analysis In Q 16, the environmental protection sector, a sub-sector of the renewable and cleantech industry, continued to attract the most investors: firms in this sector received investments, nine of which completed NEEQ private placements and three of which succeeded in attracting PIPE. In Q, CECEP Capital Holding Co., Ltd. invested RMB 787 million, the highest investment value in Q, in Beijing Water Business Doctor Co., Ltd., an environmental protection enterprise. Among the 1 investment deals in the new energy sector, the most noteworthy was the subscription of shares of CECEP Solar Energy Technology Co., Ltd. made by Beijing Fengshi Co-investment Fund (Limited Partnership) for a consideration of RMB 6 million used to construct a solar photovoltaic plant. Chart 6 Investment in sub-sectors of the China (by number of deals) 1 4.% 1 7.1% 14 4.% Start-up stage Expansion stage Mature stage 7.1% Chart Investment stages in the China (by investment value, US$ M) 7. 9.% %.7% Environmental protection New materials New energy Chart 7 Investment in sub-sectors of the China (by investment value, US$ M) % % % Start-up stage Expansion stage % Mature stage 1..4% Environmental protection New materials New energy MoneyTree TM China Renewable and Cleantech Investment Report

6 Analysis of Investment Regions In Q 16, the renewable and cleantech industry saw a trend toward regional concentration of investment. In terms of the number of investment deals, Jiangsu Province continued to rank at the top with six successful deals, followed by Beijing with five successful deals. Beijing Water Business Doctor Co., Ltd. made a private placement of RMB 787 million to CECEP Capital Holdings Limited, which brought Beijing to the top in investment value. Guangdong Province (excluding Shenzhen), Jiangsu Province and Chongqing formed the second tier, with an average financing level of only half of Beijing s. The remaining provinces and cities had relatively little in financing. Chart 8 Investment region distribution in the China (by number of deals) Chongqing Xinjiang Shanghai Shaanxi Shandong Jiangsu Hunan Hubei Henan Guangdong (Excluding Shenzhen) Beijing Chart 9 Investment region distribution in the China (by investment value, US$ M) Chongqing 7. Xinjiang 1.1 Shanghai 6.4 Shaanxi. Shandong 4.4 Jiangsu.6 Hunan 1. Hubei 1. Henan Guangdong (Excluding Shenzhen) Beijing MoneyTree TM China Renewable and Cleantech Investment Report

7 Analysis of M&A activity in the China Renewable and Cleantech Industry There were 7 mergers and acquisitions (M&As) in the China renewable and cleantech industry in Q 16, with a total disclosed sum of USD 7 million and an average transaction size of USD.4 million. Among the 7 deals, only four deals were overseas M&A, all denominated in EUR; the remaining deals were domestic M&A, denominated in RMB. In addition, there were four deals with support from PE/VC and 1 deals involving related party transactions. The statistics indicate that the renewable and cleantech industry experienced an increase in activity after having seen declining M&As for three consecutive quarters since Q 1. Compared with Q1 16, the total number of M&A in the renewable and cleantech industry increased by 8.6%, though M&A value slipped slightly. Compared with the same period historically, the renewable and cleantech industry shows a year-on-year decrease of % in the number of deals and a dramatic 7.9% fall in M&A value. This large-scale decline in M&A value in Q 16 is understood to be due largely to the overall contraction of the domestic M&A market. Even the average transaction value experienced a clear decrease to just USD million. Chart 1 M&As in the China renewable and cleantech industry from 14 to Q 16,,,, 1, 1, Q 16Q1 1Q4 1Q 1Q 1Q1 14Q4 14Q 14Q 14Q1 1,8.9 1,9. 1,17.1 1,98.6 Investment value (US$M) 7 1,4.1, , , Number of investment deals MoneyTree TM Overseas market M&A by the China renewable and cleantech industry saw an expansion in the types of M&A in Q 16. Chengdu Techcent Environment Co., Ltd. ( Techcent Environment ) acquired 1% equity interest in the German water treatment company Bilfinger Water Technologies GmbH (BWT) for a consideration of up to RMB 1.7 billion. BWT is a German provider of industrial filtration, water treatment equipment and solutions, with seven businesses including water treatment equipment, water well equipment and water intake equipment. The share of each business in the global market ranks in the top six. The acquisition of BWT will allow Techcent Environment to leverage its advanced water treatment technology and internationally advanced management experience. After the acquisition, Techcent Environment will raise matching funds for its plans to initiate BWT China projects in environmental protection equipment manufacturing and environmental engineering services, as well as a BWT China environmental protection technology innovation R&D centre construction project. Three other overseas M&A deals were transacted this quarter in Italy, Austria and the UK, respectively. In terms of sub-sectors, the environmental protection sector led other industries in M&A deals with a total of deals in Q, accounting for 74.1% of the total number of deals. There were three and four M&A deals this quarter in the new energy sector and new materials sector, respectively. With regard to M&A value, the new energy sector accounted for 6.8% of the total for the renewable and cleantech industry in Q. However, the average M&A value in the sector reached 7.4% of the average value in the renewable and cleantech industry, which is characterised by a few cases with large amounts. This was mainly due to a large M&A case in the domestic new energy sector Shenzhen Jiawei Photovoltaic Lighting Co., Ltd. s acquisition of 1% equity interest in Jinchang Guoyuan Power Co., Ltd. (Guouyuan Power) for a consideration of RMB 1,1 million. This M&A case was the second largest M&A case by value in Q. Guoyuan Power is a photovoltaic power plant company. Jiawei completed the acquisition of Guoyuan Power and, at the same time, raised RMB 6 million to invest in the construction of a photovoltaic power plant. M&A in the new energy sector was still popular in Q. However, while there were more M&A transactions this quarter compared to last quarter, the lower average size of the deals brought down the overall value of M&A activity this quarter. China Renewable and Cleantech Investment Report 7

8 Chart 11 Sub-sector M&As in the China (by number of deals) Chart 1 Sub-sector M&As in the China (by total M&A value, US$ M) % 11.1% % 74.1% Environmental Protection New Material New Energy % % Environmental Protection New Material New Energy Chart 1 Sub-sector M&As in the China (by average M&A value, US$ M) % 6.7.4% % Environmental Protection New Material New Energy 8 MoneyTree TM China Renewable and Cleantech Investment Report

9 Analysis of IPOs in the China Renewable and Cleantech Industry In Q 16, the China renewable and cleantech industry saw no IPO activity. However, there were companies in sub-sectors queuing to go public. On top of Shenzhen Hongxiao Energy Conservation Co., Ltd., Ningxia Jiaze New Energy Co., Ltd., Jiangsu Kuangshun Photosensitivity New-material Stock Co., Ltd., etc. in Q1, another ten companies were already in pre-announcement, including Poten Environment Group Co., Ltd., Shenzhen Coolead Energy Conservation Technology Co., Ltd., Xin guang Lvhuan Recycling Resource Co., Ltd., Dynagreen Environmental Protection Group Co., Ltd. and Jiangsu Landian Environmental Protection Co., Ltd. in the environmental protection sector, joined by Xuzhou Hootech New Materials Science & Technology Co., Ltd., Zhejiang Huazheng New Material Co., Ltd. and Bichamp Cutting Technology (Hunan) Co., Ltd. in the new energy sector. Furthermore, 9 renewable and cleantech industry enterprises went public on the NEEQ in Q 16, a decrease of 1.% on a month-on-month basis. All of them were involved in environmental protection business. Chart 14 IPOs in the China renewable and cleantech industry from 14 to Q 16 4,,,,, 1, 1, 16Q 16Q1 1Q4 1Q 1Q 1Q1 14Q4 14Q 14Q 14Q , Investment value(us$m) , Number of investment deals MoneyTree TM China Renewable and Cleantech Investment Report 9

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