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 The rare bidding war between government companies is also a sign
that China is giving greater freedom to its state-owned enterprises
(SOEs), as part of President Xi Jinping's reforms of the country's
sprawling government entities.
Chinese state-backed Beijing Enterprises Water Group Ltd, China
Everbright International Ltd and Beijing Capital Group are among the
suitors who have submitted initial bids for Energy from Waste (EEW),
the people added.
It is Europe's market leader in energy-to-waste and valued at 1.5-2
billion euros ($1.6-$2.1 billion), they said.
If successful, the deal would mark China's biggest outbound M&A in
the sector in about 16 years, according to Thomson Reuters data.
China had set a target to spend about $16 billion between 2013 and
2016 to improve sewage disposal and garbage treatment, according to
domestic media reports.
Swedish buyout firm EQT put the company up for sale after taking
full control of the waste-burning power producer, Reuters reported
in September.
It is currently drafting a vendor due diligence report, reviewing
the tentative offers and will soon shortlist several bidders, with a
view to signing a deal in early 2016, the sources familiar with the
process added.
Heavy Chinese interest and competition among state companies for an
overseas asset comes as the government struggles to cope with an
acute environment and waste recycling problem.
China needs top notch waste management technology to convert the
enormous amounts of refuse the world's most populous country
generates. "EEW has state-of-the-art emissions control technology
and also employs a very efficient garbage collection management
system," one person familiar with the company said.
Waste treatment and recycling has emerged as one of China's biggest
challenges as it tries to tackle pollution and ease pressure on its
depleted and contaminated water and soil.
RUBBISH HEADACHE
Government researchers have estimated that as much as 7 billion
tonnes of waste is buried around China's major cities, and the
capital Beijing is now surrounded by a belt of landfill sites known
disparagingly as the "seventh ring road".
To ease the problem, China aims to convert 30 percent of its rubbish
to electricity by 2030, up from less than 5 percent now. However,
plans to build waste-to-energy power plants have routinely been
opposed by residents alarmed at pollution risks.
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EEW has long-term contracts for accepting waste and for delivering
energy, process steam and heat. Like grids or pipelines, it
generates stable returns, making it attractive to waste management
companies.
EQT hired Morgan Stanley to run the sale process and the asset is
being heavily marketed in Asia, the people said.
Beijing Enterprises, Beijing Capital and China Everbright are
working with international banks on the deal, the people added. Last
year, Beijing Capital paid almost $800 million to buy New Zealand's
biggest waste management firm.
Separately, German utility Steag and Macquarie Group's
infrastructure arm have put in a joint bid, as have several
infrastructure groups, the people added.
EQT, Steag, Macquarie, Morgan Stanley and China Everbright
International declined to comment. Beijing Enterprises was not
available for comment, while Beijing Capital Group did not provide
an immediate response.
EEW has a 17 percent market share in Germany and operates around 20
plants, with two-thirds of its sales coming from accepting garbage
and the rest from selling energy.
About 10 percent of the waste is imported from other countries,
mainly the United Kingdom. In 2015, EEW is expected to post earnings
before interest, taxes, depreciation, and amortization of 180
million euros, the sources said.
(Additional reporting by David Stanway and Matthew Miller in
BEIJING; Editing by Mike Collett-White)
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