E.ON deal to boost Li Ka-shing firms
Toh Han Shih
Analysts said a proposed GBP3.5 billion (HK$43.6 billion) bid that Li Ka-shing is reportedly poised to make for Britain's second-largest electricity network would enhance the earnings of his companies.
The share price of Cheung Kong Infrastructure (CKI) rose 0.8 per cent to HK$49.65 yesterday, while Hongkong Electric rose 1.1 per cent to HK$37.20.
Analysts said the moves came largely in reaction to British media reports that the tycoon hoped to acquire the British electricity distribution networks of E.ON, a German firm that is the world's largest investor-owned power and gas company.
CKI is an infrastructure company, while Hongkong Electric is a electricity generator. Both Hong Kong-listed firms are controlled by Li.
CKI and E.ON did not reply to requests for comment.
Last year, CKI and Hongkong Electric jointly acquired Britain's largest electricity distribution networks for GBP5.8 billion from French energy conglomerate EDF, which was the biggest Hong Kong acquisition in Europe.
'This is a perfect match for CKI to buy E.ON's UK power networks because CKI has been looking for overseas assets in English-speaking developed countries with Commonwealth law,' Pierre Lau, head of Asia-Pacific utilities research at Citi, said. 'It's good for the company and shareholders because it will enhance earnings per share.' Lau estimated the acquisition would give CKI a 12 per cent return on equity - the acquisition by itself would not have yielded a return on equity as high as 12 per cent, but CKI would probably buy UK tax credits from Li's conglomerate Hutchison Whampoa.
The tax credits, which Hutchison obtained from its British 3G business, will raise the return on equity of the E.ON acquisition.
CKI issued US$1 billion in bonds in the second half of last year, had a net debt-to-equity ratio of 8 per cent and HK$5 billion of net cash, Lau said. 'So it is in a position for more acquisitions,' he said. 'Possibly it may buy more assets.'
BNP Paribas analysts Kenneth Tung and Chris Zee said the potential acquisition would be positive to CKI at a reasonable price at a 10 to 20 per cent premium to regulated assets base.
'We expect CKI to look for equity IRR [internal rate of return] of 10 to 12 per cent, comparable to its EDF acquisition,' they wrote in a note.
British reports say Li Ka-shing is set to make a bid for E.ON's British electricity network in a deal worth: GBP3.5b