CLP deal may lead to spin-off of assets

By buying two plants in Australia, power firm hopes to build a critical mass operation there and present it as a viable standalone entity

PUBLISHED : Monday, 29 July, 2013, 12:00am
UPDATED : Monday, 29 July, 2013, 6:05am

CLP's A$475 million (HK$3.4 billion) acquisition of two power plants in Australia is a step towards making its energy assets there more marketable to investors as a separate listed unit in future, even if by itself it is not a major strategic move, according to analysts.

"CLP is looking to build a critical mass operation in Australia that can be presented as a viable standalone entity and [spun off separately in the stock market] at some stage," said Michael Parker, senior analyst at Sanford C Bernstein. "The deal would help tidy up its portfolio."

When it announced its annual results in February, CLP said it decided not to pursue a stock market spin-off of its assets Down Under last year because their earnings fell short of their longer-term potential amid a drop in energy demand and wholesale power prices there.

The firm had considered the viability of the spin-off since 2011.

It also said in February that it did not expect to make substantial investments in new assets or projects in Australia, except for a limited number of wind farms and possible participation in privatisation of assets by the New South Wales government.

On Thursday, CLP said it had agreed to buy the Mount Piper and Wallerawang power stations from NSW's state-owned Delta Electricity.

The two coal-fired plants have a combined generating capacity of 2,400 megawatts (MW). They will add to CLP's total capacity of 2,250MW of coal, gas and wind-powered plants in Australia if the deal is completed by September 2 as expected.

Under an accord with the government similar to a facilities-leasing deal, the firm had already acquired rights to sell the output from Mount Piper and Wallerawang, supply them with coal and fund their operating costs.

Moody's Investors Service said that while the acquisition would help CLP's Australian unit, EnergyAustralia, cut costs by enhancing the flexibility of asset management and streamlining operations, it would not have much impact on CLP's rating.

"Moody's further notes that EnergyAustralia has been looking to improve its profit margins; its NSW operations in particular have been affected by lower margins since 2011 because of increased operating expenses and softening domestic demand," the agency said on Friday.

It also said EnergyAustralia might face additional costs to meet carbon dioxide emission targets set by the government at the Wallerawang plant.

CLP said the 37-year-old plant required major capital works to meet environmental compliance requirements to keep operating after 2017.

Net profit at CLP fell 10.5 per cent to HK$8.31 billion last year, owing mainly to a HK$790 million loss from its 1,480MW Yallourn plant in Victoria state. It was also hurt by a provision on a plant in India dogged by coal shortages and an asset impairment of a biomass energy project on the mainland.