Capital markets retain plenty of liquidity for the hydrogen sector, but some investors are now waiting for the next phase of projects, according to experts in the space.

The IPO in mid-July of Thyssenkrupp Nucera, which listed on the Frankfurt Stock Exchange for €20 ($22.5) a share, valued the company at €2.53b, with French Bank BNP Paribas and Saudi Arabian sovereign wealth fund PIF both buying 4.25m and 7.58m shares respectively.

“The Thyssenkrupp Nucera transaction… showed that there is still liquidity for the sector,” Antoine Trieux, head of new energies at French bank Natixis, told Hydrogen Economist.

“We are seeing more activity in the US now, post IRA” Trieux, Natixis

Investment momentum has been strong in 2022, with $3.1b of private equity spending across 37 deals during the year, a significant leap from the $1.3b seen in 2021, according to data from financial research company Pitchbook.

There have been a number of IPOs in the hydrogen sector in Europe over the past two years, including infrastructure providers Lhyfe and HDF, equipment supplier Hydrogen Refuelling Solutions (HRS) and UK-based green hydrogen and technology company CPH2.

French hydrogen refuelling station specialist HRS was one of the first players in the sector to list in Europe, seeing its public offering oversubscribed by 4.85 times and its open price offering oversubscribed 12.34 times in early 2021.

“HRS were the first to shoot, and clearly did their IPO at the best time, hence leading to a highly oversubscribed deal,” said Laurent Danino, managing director of strategic equity capital markets at Natixis.

Gaining visibility

Such good timing is the ideal situation for smaller companies launching IPOs, allowing them to gain much-needed visibility, hire talented staff and subsequently go back to markets to raise more money. 

But listing publicly involves a lot of work by the company and does not have a 100% success rate. Thysennkrupp delayed its initial IPO for Nucera in 2022 because it felt the market conditions were not right. And in 2021, dedicated hydrogen fund HydrogenOne Capital Growth raised just £107m ($139.8m) in its IPO, where it had been aiming for £250m.

The market has become pickier over the last two years as investors start to look for more mature models and shareholding structures, according to Danino.

“If the timing is not right, you really need a bulletproof case and a bulletproof shareholding structure,” he said.

Natixis, which has advised many firms—including Lhyfe—on raising finance, helps clients determine the option best suited to them.

“For those that have the willingness to have more visibility on the market and also access a more diverse investor base, then listing is the preferred option. For others more keen to first develop their business plan or enter into structuring partnerships, then private [financing] should probably be discussed,” said Trieux.

Concrete market

As part of the more selective appetite among the investment community, some investors are also now waiting for a more concrete market to emerge, looking to buy into firms raising finance for projects with FIDs, rather than taking equity stakes.

“To date, the debt market has been very small… it takes time for projects to materialise. But this is normal, and a number of these projects are now in FEED phase. After that, equipment supply will start, sales will start, EPC contracts will start and that is where really the hydrogen economy will start moving. But until then it is essentially an equity business play in a phase where IPOs are dominant,” said Trieux.

A number of projects looking to raise debt are likely to materialise in the US over the course of the next two years following the tax credit incentives in the Inflation Reduction Act (IRA) put in place by the Biden administration.

“We are seeing more activity in the US now, post IRA,” said Trieux. “We expect this to be the centre of global activity for the time being.”

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Author: Tom Young