China Power to boost capacity
Firm will use debt plus listing proceeds to develop 3,468 MW of new output
China Power International Development plans to more than double its capital expenditure next year and increase it still further in 2006, primarily to fund construction of three power plants.
As the company aims to raise only HK$2.39 billion to $2.96 billion from its upcoming initial public offering, it is planning to derive 80 per cent of the finance for the three projects - which require combined investment of 13.76 billion yuan - through debt.
The future red chip's preliminary listing prospectus says it has budgeted 3.49 billion yuan for expenditure next year and 4.4 billion yuan for 2006 - up from 1.7 billion yuan this year.
More than 90 per cent of the spending would be on the planned power plants, with the remainder set aside for the upgrade of existing plants.
The projects in Anhui, Henan and Hubei provinces have a capacity of 3,468 megawatts, more than China Power's existing 3,010 MW capacity. They are scheduled for completion between 2007 and 2009.
China Power has managed to obtain bank facilities worth 11.4 billion yuan from several lenders.
China Power had debt of 1.53 billion yuan, cash of 326.91 million yuan and shareholders' equity of 3.8 billion yuan at the end of June, implying a net debt-equity ratio of 31.77 per cent.
The firm has an option to buy a 25 per cent stake in A-share Shanghai Power from ultimate parent China Power Development Corp, adding 702 MW to capacity.
China Power also manages six plants, with net capacity of 3,322 MW, for its parent. They are potential acquisition targets.
Despite concerns an aggressive expansion will raise its debt burden substantially, China Power vice-chairwoman Li Xiaolin said its red-chip status would assist fund raising. 'We are the only red-chip company under the mainland's five power generation groups. This will help us raise funds overseas,' she said.
The approval procedures for new shares and foreign currency bonds for overseas-registered red chips are less cumbersome than for mainland-registered H shares.
The company has promised to pay not less than 25 per cent of its net profit as dividends.
From 2001 to last year, it paid dividends to its parent amounting to between 63 per cent and 103 per cent of net profit.
Fund managers have expressed interest in China Power's offering, saying the sector will benefit from surging power demand.
Some warned that sharply higher coal prices this year would damage China Power's profit margins.
BNP Paribas Peregrine Capital regional equity capital markets executive director Darius Yuen said investors were becoming more sophisticated and selective in buying into initial public offerings.
Meanwhile, main-board listing candidate Kam Hing International Holdings said its retail tranche offering of 16 million shares was 8.06 times over-subscribed, with the international tranche of 144 million shares 2.4 times covered.
The yarn-knitting and fabric-dyeing firm raised $201.6 million from the share sale.
