Berkshire Hathaway

Northeast Electric gets jolt from Buffett rumour

PUBLISHED : Thursday, 28 May, 2009, 12:00am
UPDATED : Thursday, 28 May, 2009, 12:00am

Shares of Northeast Electric Development, a maker of electrical transmission machinery based in Liaoning province, jumped as much as 69 per cent yesterday after mainland media said renowned US investor Warren Buffett might buy a stake.

The Shanghai Securities News, citing market speculation, reported that the chairman of Berkshire Hathaway was in talks to invest in the Hong Kong- and Shenzhen-listed firm.

The report said Mr Buffett planned to invest in state-owned electrical transmission companies that were undervalued, as he thought there would be a huge demand for electrical transmission products and equipment in rural areas.

Trading in Northeast Electric's H shares was suspended at 10.54am yesterday after they had climbed as high as HK$2.40 and then retreated to HK$2.26, a rise of 59 per cent. They had risen 20 per cent on Tuesday. The A shares were suspended all day yesterday pending an announcement.

Investors acted on the rumour because Mr Buffett is known to deliver solid returns on his China forays.

Shares of Hong Kong-listed BYD have soared nearly 300 per cent since the end of September last year, when the mainland alternative-energy vehicle producer said Mr Buffett's MidAmerican Energy Holdings was buying a 10 per cent stake for HK$1.8 billion. That deal has yet to receive final approval from mainland authorities.

Northeast Electric executives later denied that Mr Buffett was in talks to buy a stake in the company, which reported losses in 2007 and 2008 and in the first quarter of this year. Analysts said the recent gains of Northeast Electric and other transmission equipment producers were due to speculation that the government would boost spending to build 'smart' power grids.

These grids deliver electricity to consumers from producers using digital technology that could reduce costs, save energy and increase the reliability of the power supply. Mainland media said investment in smart grids could reach 680 billion yuan (HK$772.14 billion) by 2020.