China's SOEs on shopping spree for more Hong Kong monopoly assets
State Grid's HK$10 billion investment in IPO candidate HK Electric a sign of more to come
The spate of recent investments by mainland state-owned firms in Hong Kong's utilities sector signals more such acquisitions of the city's monopoly assets, say analysts.
Companies such as Hong Kong Exchanges and Clearing, MTR and telecommunications services carriers appear to be the next target for merger and acquisition activity, they said.
"Some Hong Kong companies are deleveraging their assets and cash-rich Chinese state firms are hungry for acquisitions," said ANZ Research chief economist Liu Ligang. "More and more of these companies will shop in the city for assets with guaranteed returns even though the returns on assets are not that high since Hong Kong is a mature market."
In the past few weeks, two state-owned enterprises have been shopping around in the city. On Monday, State Grid of China, which owns and operates all high-voltage power transmission and lower-voltage distribution assets in all but five southern provinces and administrative regions on the mainland, paid about HK$10 billion for an 18 per cent stake in IPO candidate HK Electric Investments, the dominant power supplier in Hong Kong and Lamma islands.
The investment makes State Grid the second-largest shareholder in the power utility, after Li Ka-shing's energy flagship Power Assets Holdings. State Grid has recently been buying electricity assets in Australia, the Philippines, Brazil and Portugal, as part of its ambitious plan to build up its international portfolio from US$5 billion last year to US$50 billion by 2020.
HK Electric chairman and executive director Canning Fok Kin-ning said yesterday State Grid was a cornerstone investor in the group's HK$28 billion initial public offering, which opens for public subscription today.
Last month, China Southern Power Grid (CSG), the other electricity major that forms the duopoly with State Grid on the mainland, spent HK$12 billion on a 30 per cent stake in the electricity generation assets of CLP Power, the monopoly in Kowloon, New Territories and Lantau.
"Hong Kong is a prime destination for state-owned enterprises in terms of overseas acquisitions," said Thomas Chan Man-hung, head of the China Business Centre at Hong Kong Polytechnic University. "It's a market they know relatively better, with less protectionism and with more synergy with their businesses on their home turf," he said.
