H share's price falls over issue plan fears
Shares of H-share Beijing Datang Power Generation slid 1.74 per cent to HK$2.825 yesterday on news of a planned US$300 million convertible bond issue.
Beijing Datang, one of China's largest independent power producers, said the bonds could be converted into H shares and would be listed on the Luxembourg Stock Exchange.
Analysts said the share price was hurt by fears of a potential negative impact on existing shares if the bonds were converted into H shares.
'It's a sensible move for the company because it can get a much cheaper source of financing,' an analyst from a United States brokerage said. 'However, it's negative to existing shareholders because the bonds, on conversion, will dilute their interest.'
Beijing Datang said it was taking advantage of low interest rates and wanted to have its debts refinanced at a lower cost.
Pending details such as the conversion price, issue size, interest rate structure and timing of the issue, the bonds will be sold to institutional and professional investors only.
Beijing Datang, which serves mainly the Beijing-Tianjin-Tanshan power grid, plans to spend US$220 million of the proceeds on imported equipment for power generation.
Analysts believe the equipment is mainly intended for its Tuoketuo power plant in Inner Mongolia. The 1,200 megawatt coal-fired plant, which cost six billion yuan (about HK$5.62 billion) to build, will be completed in two phases in the next two years.
The H share is trying to complete 1,800 megawatts of installed capacity in the next two years.
Beijing Datang plans to use the remaining proceeds to refinance part of its foreign exchange borrowings.
It said the conversion price of the bonds would be set after a book-building process, or a gauge of investor demand for the issue. It said the price would be based on the average closing price of the H share over a certain number of trading days.
Judging by the stock's average closing price last week, the conversion price will be HK$2.985. So, shareholders' interest in the firm will be diluted from 27.7 per cent to 24.1 per cent.