Xebec Shanghai will receive a direct strategic investment from Shenergy to collaborate on building China’s hydrogen infrastructure –
MONTREAL-– Xebec Adsorption Inc. (TSXV: XBC) (“Xebec”), a global provider of clean energy solutions, today announced a strengthened partnership with Shanghai-based Shenergy Group Company Limited (“Shenergy”).
Initially formed in 2015, the existing Sino-Joint Venture partnership with Xebec Shanghai will receive a direct strategic equity investment ($3.4M) from Shenergy in exchange for the debt and interest owed by Xebec for its share buyback obligation. The newly formed partnership will open large-scale opportunities to develop hydrogen infrastructure in China. Shenergy is one of several designated state-owned enterprises tasked with building out hydrogen infrastructure in Shanghai and across China.
“Xebec has been a valuable partner since 2015 when we embarked with them to collaborate on hydrogen projects in China. The hydrogen fuel market is now starting to accelerate with China’s new government policies, and we wanted to strengthen our relationship with this strategic investment. Xebec’s PSA technology platform is known for its robust performance, compact footprint, and low operating costs for hydrogen purification. We see Xebec’s solutions and expertise as a key component in our mandate for the rollout of hydrogen refueling stations and onsite hydrogen generation infrastructure. I look forward to our collaboration and it is our honor to be working with a worldwide renewable gas leader,” states Xue Feng Song, Deputy General Manager at Shenergy Group Company Limited.
“We’re excited to be taking our partnership with Shenergy to the next level. Shenergy is an energy leader in China and has been a key partner for Xebec Shanghai since 2015. They saw an opportunity to further our relationship by making a strategic equity investment into Xebec as they prepare for China’s new hydrogen policy, one of the most aggressive in the world. This partnership will help us grow our hydrogen business in Asia and is expected to have a positive impact on our activities in Europe and North America as Xebec integrates with and benefits from the growing hydrogen supply chain in China,” says Kurt Sorschak, President & CEO, Xebec Adsorption Inc.
China’s new policy sets a framework for one million FCEV on the road by 2030
Announced in September, China set an aggressive hydrogen policy that targets 1 million fuel cell electric vehicles (FCEVs) on the road by 2030. Part of this target is an initial five-year plan for the accelerated development of the hydrogen fuel cell vehicle industry, with an aim to achieve a total deployment of 10,000 FCEVs and a total economic output of RMB 24 billion by 2025.
There have been approximately 7,200 FCEVs and 80 refueling stations deployed in China to date. Xebec believes this new policy showcases the strategic significance of FCEVs for the decarbonization of transportation and hydrogen’s extended use within the industry.
In addition, China’s new hydrogen policy was followed by the country’s pledge to be carbon neutral by 2060. The country now joins more than 60 others who have pledged carbon neutrality by 2050. Hydrogen is expected to play a key part in reducing the world’s greenhouse gas (GHG) emissions by displacing the use of higher carbon-based fuels.
Strengthened partnership will allow Xebec to scale its hydrogen footprint and improve its balance sheet
Xebec Shanghai has successfully deployed 25 hydrogen purification systems in China to date with an additional seven scheduled for commissioning over the next few months. These systems have historically been used for refinery or petrochemical off-gas purification to provide high purity hydrogen for FCEVs or industrial applications. As a result of the new policy, additional applications are expected to open up, such as hydrogen refueling infrastructure and de-centralized hydrogen production where Xebec’s technology will be needed.
Shenergy in effect has converted the debt Xebec owed to Shanghai Chengyi New Energy Venture Capital Co., Shenergy’s financial services subsidiary, into a direct strategic investment of equity. Consideration of approximately $1.7M will be paid for the outstanding interest owed by Xebec, and the $3.4M of long-term debt will be moved into the equity section of Xebec’s balance sheet. Following the transaction, Xebec will own 60% of the Sino-Joint Venture with 35% belonging to Shenergy and 5% to a management incentive pool.
The definitive agreements for the investment have been signed at the end of October, and closing is expected to occur at the end of December 2020. Xebec and Shenergy will have board representation in Xebec Shanghai and decisions will need a greater than two-thirds majority. Consequently, after closing, IFRS requires that Xebec no longer consolidate Xebec Shanghai into its financial statements; instead, Xebec will consolidate the proportional profits and losses of Xebec Shanghai.