Cheung Kong Infrastructure Holdings

CKI wins power grid for NZ$785m

PUBLISHED : Tuesday, 29 April, 2008, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

Cash-rich Cheung Kong Infrastructure Holdings (CKI) is diversifying into the regulated power market in New Zealand after beating other bidders with its NZ$785 million (HK$4.78 billion) offer for an electricity distribution network in Wellington.

CKI, the utilities and toll roads flagship of Li Ka-shing, agreed yesterday to buy from energy infrastructure group Vector the electricity grid serving Lower Hutt, Upper Hutt, Porirua and Wellington City.

The deal will add fuel to CKI's overseas growth and pave the way for a possible sale of half of its stake in the project to its growth-challenged associate, Hongkong Electric Holdings.

Vector, which will use the proceeds to trim debt, said the sale was pending approval by its shareholders and New Zealand's Overseas Investment Office.

An analyst at a European brokerage said the deal would open a stable income source for CKI, which had an HK$8.2 billion war chest as of the end of last year.

'It is good news that the cash pile is invested rather than resting in this low-interest regime,' he said. 'The acquisition in a regulated market will bring to the company a stable return and steady cash inflow.'

He said tariffs of the Wellington power grid were linked to the city's consumer price index at a rate that was reset every five years. The existing tariff regime will mature in 2010.

A Deutsche Bank report said the New Zealand project should have an annual internal rate of return of 12 per cent and next year provide a 2 to 3 per cent boost to CKI's earnings per share, which were HK$2.12 last year.

The brokerage forecast the project would generate HK$240 million in net profits to CKI annually.

To spread risks while maintaining control of the project, CKI was likely to sell a 50 per cent stake in the project to Hongkong Electric, some analysts said. Hongkong Electric declined to comment.

In an earlier acquisition, CKI paid C$629 million (HK$4.84 billion) for 100 per cent of TransAlta Power of Canada and subsequently sold a 50 per cent stake to Hongkong Electric for about HK$2.5 billion in October last year, in an arrangement to unburden its balance sheet of the Canadian power producer's liabilities.

Based on analysts' estimated double-digit return on the New Zealand project, Hongkong Electric is potentially better off overseas as the return on assets of its core electricity supply operation on Hong Kong and Lamma islands will be cut 33 per cent to 9.99 per cent next year.

CKI and Hongkong Electric are expected to leverage on their experience in operating Australia's electricity distributors, CitiPower in Melbourne, ETSA Utilities in South Australia and Powercor in Victoria.

CKI shares were suspended yesterday pending a statement on the deal. They last traded at HK32.30 on Friday. Hongkong Electric climbed 0.42 per cent to HK$48.10.