A Swedish start-up backed by the Agnelli, Wallenberg and Maersk families is seeking to raise more than €1.5bn of equity funding to further its ambitions of building steel plants with virtually no carbon emissions.
H2 Green Steel, which is also backed by Mercedes, Scania and Spotify’s chief executive, is in the earlier stages of seeking the new funding and is working with advisers from Morgan Stanley, according to people familiar with the matter.
H2GS confirmed that it had begun the final part of its financing strategy to raise more than €5bn, including €3.5bn in debt.
“We are now in an equity process. We are working on that in parallel with the continuing process on the debt side. It is for in excess of €1.5bn,” the Swedish group said, confirming it was working with Morgan Stanley. A representative for the US bank declined to comment.
A €1.5bn equity financing would rank among the largest such deals in Europe this year, at a time when volatile markets and falling technology valuations have otherwise cooled private markets.
H2GS is one of the most prominent new businesses in the race to develop green steel, which is made using electric rather than coal-fed furnaces, and is going up against many of the sector’s incumbent leaders.
It is aiming to tap into northern Sweden’s abundant and relatively cheap hydropower resources for the large amount of electricity needed and plans to cut 95 per cent of the emissions from producing steel, an industry that represents about 7 per cent of global emissions.
There are growing questions in Sweden about the power needs of H2GS and in particular its rival Hybrit, founded by three Swedish state-controlled companies, that together have power demands for the next decades equivalent to close to the entire current electricity production of the Scandinavian country.
H2GS will use the more than €1.5bn, which comes on top of €350mn in equity already raised, to help build its first factory in Boden, close to the Arctic Circle.
It is hoping to start full-scale production in 2025-26, a year or two later than its initial plan, and will need about 10 terawatt hours of electricity annually to produce 2.5mn tonnes of steel. Sweden produced 169TWh of electricity in 2021 while Europe produces about 150mn tonnes of steel in total.
LKAB, the Swedish state-run mining company that will supply Hybrit and possibly H2GS with sponge iron, estimates it will need 70TWh of power by 2050 to decarbonise its production.
H2GS said in October it had received support from European financial institutions for its €3.5bn debt financing. Around that time it also closed a €260mn equity deal from backers such as Hitachi Energy, Kobe Steel and Swedish investment company Kinnevik.
Investors in H2GS’s first equity fundraising included the Agnellis’ Exor, the Wallenbergs’ FAM, Italian steel company Marcegaglia, the Imas foundation that is part of the Ikea empire, and Swedish entrepreneurs Daniel Ek and Cristina Stenbeck. Vargas, the investment group behind Swedish battery maker Northvolt, is also an early backer.
Northvolt is in talks to raise more than €5bn of debt financing, the Financial Times has previously reported.
Additional reporting by Arash Massoudi