Huaneng Power in $2.5b plant buy

PUBLISHED : Saturday, 24 April, 1999, 12:00am
UPDATED : Saturday, 24 April, 1999, 12:00am

Huaneng Power International is to pay 2.7 billion yuan (about HK$2.51 billion) for Nanjing Power Plant - the largest coal-fired power plant in Nanjing city.

Analysts said the figure was high considering how little the plant would add to Huaneng Power's earnings.

'The company is buying the plant at a 15.5 times price-earnings ratio, but the profit enhancement is estimated to be 1.3 per cent for this year only,' one analyst at a European brokerage said.

The H share said it was buying 75 per cent of the facility from its controlling shareholder Huaneng International Power Development Corp (HIPDC), and 25 per cent from Nanjing Investment.

HIPDC has a 42.17 per cent stake in the H share.

Under the deal, Huaneng Power will assume 1.34 billion yuan of the power plant's debt and issue 200 million new domestic A shares at an estimated 4.8 yuan a share to raise 960 million yuan.

The balance of about 400 million yuan will be paid in cash.

The shares are part of the proposed 350 million in new A shares to be issued by the company through a public offering in Shanghai in the second half.

The H share two weeks ago said it had a cash position of about four billion yuan available for asset purchases.

Asset acquisition has been an important way for the company to generate faster earnings growth in the wake of nation-wide sluggish demand for electricity due to the economic downturn.

The deal - which constitutes a connected transaction under listing rules - is subject to approval from independent shareholders and the relevant local government authorities, the company said.

Last year, the Nanjing plant generated an actual 3.17 billion kilowatt hours of electricity, a decline of 4.8 per cent from 1997.

After-tax profit reached 174.5 million yuan last year.

The analyst with the European brokerage expects the company to post a net profit of 1.96 billion yuan this year and 2.31 billion yuan next year, after taking into account an expected tariff increase of three percentage points during this year.

The prediction - without taking the latest purchase into account - compares with last year's profit of 1.83 billion yuan.