(Reuters) – Canada’s Investment Management Corporation of Ontario (IMCO) has invested $400 million in battery producer Northvolt, which will help the Swedish company expand production of lithium-ion batteries ahead of a possible initial public offering.
Northvolt, which counts BMW and Volkswagen (ETR:VOWG_p) among its investors, last year delivered its first battery cells from its gigafactory in Skelleftea in Sweden.
The group has raised more than $8 billion in debt and equity since 2017 in its bid to become Europe’s biggest battery manufacturer, including $1.1 billion in convertible notes last year from multiple investors.
In its largest deal in Europe yet, IMCO has invested $400 million in Northvolt through convertible notes, it told Reuters.
“Northvolt really fits with a lot of the trends we are trying to invest in,” Rossitsa Stoyanova, IMCO’s Chief Investment Officer, said in an interview, referring to themes including the transition to a lower-carbon economy and the restructuring of global supply chains.
“Whether it (Northvolt) goes public or stays private, we’ve done our homework and we are happy with the investment.”
A Northvolt spokesperson said the company hoped to reveal “the next steps in our financing plan in the near future”.
Convertible notes are debt that can convert to equity on pre-agreed terms and have proved popular among private companies recently as other funding markets dry up. They also allow businesses to avoid being explicit about their equity value.
Investors worry valuations in private markets have fallen sharply in tandem with public markets since central banks began hiking interest rates 18 months ago.
For IMCO, the convertible note provides regular interest payments and downside protection should Northvolt struggle to grow as expected.
Northvolt, valued at $12 billion in 2021, has been in talks with banks about an initial public offering that could value it at more than $20 billion, sources told Reuters earlier this year.
The company said last month it would invest several billion euros to build an electric vehicle battery plant in Germany, and sources have said Northvolt has been in discussions to raise cash through debt funding to expand its factories.
IMCO is embarking on a drive to invest more in continental Europe and Britain to diversify its assets away from North America.
Stoyanova said strong policy support in Europe for the shift to electric vehicles and the onshoring of manufacturing made Northvolt particularly attractive.
IMCO manages more than $73 billion in assets across assets classes including stocks, bonds, real estate, infrastructure and private equity.
It was formed seven years ago after Ontario decided to pool the province’s public sector pension schemes – creating a heft IMCO can leverage to buy assets directly or alongside key investment partners including Blackstone (NYSE:BX), Brookfield and Carlyle.
Matthew Mendes, IMCO’s head of infrastructure, said the Northvolt investment was examined jointly by his team and IMCO’s public equities managers.
“We think there is a really strong story that will resonate with public investors (if Northvolt lists),” he said, citing the company’s competitive advantage, long-term contracts and lower-carbon supply chain.
Mendes was previously CEO of UK-based battery storage business Pulse Energy, which IMCO bought in 2021.
IMCO has an investment team of 110 staff, which it plans to grow as it looks for more investments overseas.
