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China Power markets US$450m share offer
(Shenzhen Daily)
Updated: 2004-09-10 13:52

China Power International Development Ltd, controlled by one of China's top five electricity groups, Tuesday began preliminary marketing of a Hong Kong initial public offering (IPO) worth US$300-450 million, said sources close to the deal.

Chinese power companies are raising funds to build capacity as the country, the world's second-largest electricity user, suffers its worst power shortage in decades. This year's nationwide shortfall is estimated at 40,000 megawatts.

It aims to kick off a formal management roadshow for the IPO in the week of September 20 and price the deal in the week of October 7, a banking source said.

China Merchants Securities, which is arranging the deal with Merrill Lynch, expects net profit at China Power to rise 8.3 percent to 655 million yuan (US$79 million) in 2004 and jump more than 50 percent to 988 million yuan in 2005.

China Power is expected to have a market capitalization of between US$909 million and US$1.36 billion after selling 990 million shares, or 33 percent of its enlarged share capital. That translates to 11.5-17.3 times 2004 forecast earnings and 7.6-11.5 times 2005 forecast earnings.

At the low end of the price range, State-controlled China Power will be sold at a discount to its four Hong Kong-listed rivals.

Huaneng Power International Inc, a bigger company headed by Li Xiaolin's brother, has a market capitalization of US$9.4 billion and trades at 13.7 times 2004 earnings. China Resources Power, with a market value of US$2.1 billion, trades at 12.6 times 2004 earnings.

China Merchants expects the net margin of China Power to drop to 19.3 percent in 2005 from 20.7 percent in 2004 as its tax rate doubles to 15 percent after a preferential tax period lapses.

High coal prices have prevented Chinese power firms and investors from fully cashing in on rampant electricity demand.

"Rising coal prices will eat into power generators' profits," said BCOM's Ko.

A 1 percent rise in coal prices translates into a 2.5 percent drop in China Power's net earnings, China Merchants said.

The investment bank expects the average coal price in China to surge 30 percent in 2004 to 226.2 yuan per ton.

The firm plans to invest US$1.29 billion by the end of 2005 to boost its power-generating capacity.

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