CR Power fails to hold gains on debut
China Resources Power Holdings had a dismal debut yesterday, with its share price slipping 1.78 per cent below its offer price.
The independent power producer (IPP), the energy investment flagship of State Council-controlled China Resources (Holdings), finished its first day of trading yesterday at $2.75, the lowest after touching a peak of $3.05.
Trading was hectic, with 507.72 million shares worth $1.48 billion changing hands.
Brokers said the lacklustre performance was due to the stock's relatively expensive price compared with its peers and the 0.26 per cent decline in the Hang Seng Index yesterday.
'It's disappointing,' VC CEF Brokerage director Louis Tse Ming-kwong said.
'The stock shouldn't have been priced at a price-earnings (PE) ratio of 33 on this year's earnings, which is way above other IPPs which are bigger and more profitable.'
CR Power's share-sale price was fixed at the high end of an indicative range between $2.20 and $2.80. The share offer raised $2.57 billion, most of which will be used to finance the construction of new plants.
Based on yesterday's closing prices, China's largest IPP, Huaneng Power International, was trading at a PE of 18.69 and Beijing Datang Power Generation at 17.82. Shandong's largest IPP, Huadian Power International Corp, formerly Shandong International Power Development, was trading at a PE of 12.26.
However, CR Power chairman Song Lin rejected the criticism on the stock's pricing, saying the company's share price remained low compared with its future prospects.
'We're selling our future in 2005,' Mr Song said after the listing ceremony.
CR Power plans to spend $15 billion boosting generation capacity by 187 per cent to 4,438 megawatts in the next two years.
The expansion would be done mostly through construction of new plants in the Pearl River delta, Beijing and Tianjin regions, where supply of electricity consistently failed to meet demand, Mr Song said.
'We will only invest in projects with an internal rate of return of 12 per cent,' he said. 'Any projects below this return won't be considered.'
Mr Song said CR Power's competitive edge over other IPPs was its ability to keep costs low.
He pointed out that the company's average cost of capital was at about 5 per cent.