A Van Hool NV bus powered by a Ballard Power Systems fuel cell module in an undated handout photo.Supplied
Ballard Power Systems Inc. proceeded cautiously in China, limiting the potential fallout when a deal eventually turned bad – and demonstrating valuable lessons for other Canadian companies operating in emerging markets.
Last-minute negotiations stretching over the Christmas break brought no resolution to a contract dispute between the B.C.-based clean energy firm and a Chinese company that was licensing its technology.
Ballard chief executive officer Randy MacEwen said in an interview that the Chinese firm, Azure Hydrogen, had failed to pay by multiple deadlines and was trying to renegotiate the terms of the deal without meeting back payments – something Ballard simply couldn't tolerate.
On Jan. 2, after Azure missed a Dec. 31 deadline, Ballard announced it had terminated two lucrative licensing agreements for telecom backup power systems and zero-emissions buses – worth about $6-million and $11-million, respectively, to Ballard over 2014-15 alone. The firm consequently took a $4.5-million impairment charge, missed its 2014 guidance and saw its shares crash nearly 10 per cent that Friday to $2.14, the continuation of both a year-long slide and a long decline from the early 2000s – when its shares soared above $190 on high hopes for alternative energy sources.
But despite the deflating loss of the Canadian firm's first major contract in China's vast market, Ballard's Mr. MacEwen said they remained optimistic about their chances in China – where deadly pollution has spurred officials, some of whom were present when the deal was signed, to prioritize greener transportation. He added that their experience held lessons for other Canadian firms.
"As you go into these markets, you try to do the best due dilligence you can," Mr. MacEwen said. "But you never know what's going to happen."
For Ballard, which looked carefully before allowing the use of its technology, the curveball came when Azure was bought out by another Chinese firm anxious to get in on the market. Mr. MacEwan suggested the new owners may not have had the capital required to see the deal through, or else may not have fully understood how their licensing agreement was structured, and may have felt that they had overpaid for Azure, given the royalties that would flow to Ballard.
Mr. MacEwen said Ballard's experience offers three main lessons for companies doing business in China. First is the need to "stage gate" the process so that there is no transfer of intellectual property before all payments have come in. Second, Mr. MacEwen said fast-moving markets such as China require flexibility – and that striking exclusivity agreements too early, something Ballard did not do, could leave a company exposed. And lastly, he stressed that although it is difficult in some markets, executives should thoroughly validate the ownership structure of a company, and whether that company can afford to pay going forward.