China Resources Power Holdings and Huadian Power International have paid out about 25 per cent of their profits in dividends, while Datang International Power Generation and Huaneng Power International have indicated they will pay 50 per cent or more, said an analyst at a brokerage not involved in the China Power share offer.

'Like China Resources Power and Huadian Power, China Power also has a relatively high debt load and capital expenditure commitments [relative to its size] when compared with Datang and Huaneng, so it cannot afford to pay out too much in dividends,' the analyst said.

China Power plans to more than double its generation capacity by 2009 from an existing 3,010 megawatts (MW) by building new plants and buying assets from its parent, China Power Investment Corp.

Realising the expansion goals of China Power, which is run by managers including former premier Li Peng's daughter Li Xiaolin, will largely depend on funding availability and government approval of new projects.

So far, only one of three planned projects, which together have capacity of 3,468 MW, has received Beijing's approval.

In addition, China Power may buy up to six plants totalling 3,322 MW and a 25 per cent stake in A share Shanghai Power Electric, which has a total capacity of 2,809 MW, from its parent by 2009. The plants are currently managed by China Power under contract.

The expansion is estimated to cost US$3.75 billion based on the industry norm of $500,000 per MW of capacity.

China Power, which aims at raising between US$300 million and $400 million from the share offer, is forecast to achieve a net debt-equity ratio of 45.4 per cent by the year-end, according to the offer's co-manager JP Morgan. That ratio is expected to rise to 93.3 per cent - excluding the listing proceeds - by the end of next year.

The central government, which currently supports the power sector, is searching for ways to rid the country of crippling electricity shortages which are expected to persist until at least the end of next year. Power projects can receive up to 80 per cent financing in the form of bank loans.

But analysts have said that slower growth in energy-hungry sectors such as aluminium and cement, and a large supply of new power plants would more than correct the shortage by 2007 and could lead to surplus capacity. Beijing stopped approval of new projects between 1999 and 2001, due to a capacity surplus in the industry.

The price paid by China Power for coal, which accounts for half a typical mainland power plant's operating costs, rose 21.6 per cent year on year in the first half, compared with 26 per cent at Huaneng, 13 per cent at Huadian and 5.6 per cent at China Resources Power. Datang paid 1.5 per cent less for its coal in the first half.

The analysts also cautioned that power-rich Liaoning province, where China Power plans to buy its parent's 1,200 MW Qinghe plant, was expected to liberalise tariffs by opening the sector up to competition at the year-end. The move could lead to a drop in tariffs.