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Tuesday, 12/01/2020 10:13:07 PM

Tuesday, December 01, 2020 10:13:07 PM

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Canada Banks Seek Seat at Xebec Talks Amid Hydrogen Fervor
By Esteban Duarte

November 29, 2020, 10:00 PM PST Updated on November 30, 2020, 7:49 AM PST

Montreal-area firm explores strategic M&A in China and Europe
Xebec to seek a credit rating ahead of potential ESG financing

Canadian banks are eager to gain exposure to growing momentum in the hydrogen industry, giving talks surrounding Xebec Adsorption Inc.’s debt the characteristics of a “tender,” according to Chairman Kurt Sorschak.

The provider of clean energy solutions is seeking to replace two of its credit facilities. Three large Canadian banks have entered talks, and the new financing could be “almost ten times larger” than those existing, Sorschak said in an interview.

The company is looking to replace credit lines for a total of C$4.5 million ($3.5 million), which are currently provided by National Bank of Canada and Export Development Canada. The new deal is expected to be ready in December, he said.

Xebec is bolstering its access to credit soon after reorganizing its partnership with Shenergy Group, a Chinese state-owned utility that’s preparing to roll out hydrogen refueling stations and onsite generation infrastructure. The company’s stock - which has jumped close 175% so far this year - rose Monday as much as 1.87% to C$5.98 compared to a decline of 1.4% in the S&P/TSX Composite Index. It had an equity market value of almost C$633 million as of 10:42 a.m. in Toronto.

In the past, banks “have been very restrictive on the commercial facilities,” said Sorschak. Currently, “they are very, very aggressive.”

Governments, energy producers and carmakers around the world have pointed to hydrogen as pivotal for cutting greenhouse-gas emissions and preventing the worst effects of climate change. That’s triggered a global race to stake claims in what could be a $700 billion business by 2050, according to BloombergNEF. In Canada, hydrogen is the clean energy investment that appeals the most to country’s asset managers, according to a survey carried out for HSBC Holdings Plc.

While the company is “sufficiently capitalized for the time being,” it could explore the issuance of equity and debt to finance a strategic acquisition, he said. In the medium-term, Xebec plans on getting a credit rating ahead of a potential sustainable debt transaction, Sorschak said.

The firm is looking for a potential “strategic” M&A transaction in China and Europe, where governments are ramping up support for the hydrogen industry, he said.

Targets in North America are very limited because big companies have already bought firms operating in the space. However, investment plans around hydrogen are taking off, said Sorschak, citing Enbridge Gas Inc.’s recent announcement of a so-called blending pilot project with Cummins Inc.

In Canada, “we have the potential to be a hydrogen superpower,” said Sorschak, because the country can produce “a lot of cheap natural gas out in Alberta.” He added that the country also it has an abundance of of hydro-power electricity.

— With assistance by Michael Bellusci