Investors give nod to Power Assets spin-off

Utilities firm pitches the HK$44.4b deal to selected institutions while concerns grow about potential earnings dilution and unattractive yield

PUBLISHED : Tuesday, 07 January, 2014, 1:46am
UPDATED : Tuesday, 07 January, 2014, 3:33am

Power Assets, an international utilities firm controlled by Asia's richest man, Li Ka-shing, said its shareholders had approved a proposed spin-off listing of its Hong Kong electricity arm, paving the way for a fund-raising scheme worth up to HK$44.4 billion.

A handful of minority shareholders had opposed the separate listing and management had explained the benefits of floating the assets to them, Power Assets chairman Canning Fok Kin-ning said after the poll at a shareholders' meeting yesterday.

More than 99.7 per cent of Power Assets' shareholders voted to approve the deal, the firm said in a statement submitted to the Hong Kong stock exchange.

Bankers said the company had started to pitch the trust deal, which should pay an annualised return of 5.5 to 7.3 per cent, to selected institutional investors, with a formal roadshow next week.

Pricing is expected to be announced on January 22, with trading scheduled to begin a week later.

Market views on the proposed spin-off listing are fairly divided. A number of long-term investors expressed concern about earnings dilution after the listing of the Hong Kong assets - the biggest contributor to Power Assets' earnings - following persistent weakness in the company's share price since it announced the deal in September.

Adding to concerns about the deal, market analysts cited the unattractive yield from mature assets and Li's track record in selling his port assets through a US$5.5 billion trust listing in Singapore. Shares of Hutchison Port Holdings Trust have plunged 34 per cent since it went public in March 2011.

Fok, who also heads Hutchison Whampoa, said Power Assets, which will own 30 to 49 per cent of the units in the trust, HK Electric Investments, would reserve about 10 per cent of the spin-off deal for existing shareholders.

Known for his deal-making skills, octogenarian Li is also seeking a spin-off of Hutchison's retail arm, AS Watson, after scrapping plans to sell its supermarket chain, ParknShop, last year.

The initial public offering of AS Watson, which also operates drug stores and electronic gadget chains, could easily fetch a further HK$98 billion.

Shares in Power Assets fell 1.48 per cent to HK$59.90 yesterday, slightly above their 52-week low of HK$58.80, while the benchmark Hang Seng Index eased 0.58 per cent.

If everything goes smoothly, the HK$44.4 billion spin-off of Power Assets' Hong Kong electricity arm would be the biggest listing in the city since October 2010, when pan-Asian insurer AIA raised more than US$20.4 billion.

Hongkong Electric, which started operations in 1889, provides electricity to about 568,000 customers on Hong Kong and Lamma islands. The company, one of two major power suppliers in the city, reported a net profit of HK$3.56 billion in the nine months to September last year, when it had a net asset value of HK$14.03 billion.

Goldman Sachs and HSBC are the global co-ordinators for the trust's listing and sale of the units.