China’s Huaneng Power unveils HK$5.7b capital raising, shares tumble

Huaneng Power International to sell HK$5.7 billion worth of new shares at 9.5 per cent discount

PUBLISHED : Friday, 13 November, 2015, 1:15pm
UPDATED : Friday, 13 November, 2015, 6:37pm

Shares of Huaneng Power International were hammered yesterday, following an announcement by the company that it plans to sell HK$5.7 billion worth of new shares to repay loans and fund business development, shoring up its capital base ahead of a cut in producers’ power prices expected soon.

Huaneng Power’s Hong Kong shares closed 7.7 per cent lower at HK$7.47, the lowest since April last year.

The listed unit of the mainland’s largest power generator China Huaneng Group has appointed Citic CLSA Securities as the sole agent to sell 780 million new shares - or 5.13 per cent of its total number of issued shares - at HK$7.32 each, HPI said in a statement to the Hong Kong Exchanges & Clearing on Friday ahead of the start of trading.

It represented a discount of 9.5 per cent to Thursday’s closing price of HK$8.09.

The company last sold new shares just over a year ago, when it raised HK$3.1 billion by selling 365 million shares at HK$8.6 each.

“The net proceeds from the placing are intended to be used for repaying bank loans and supplementing working capital,” the company said in the statement. “The placing will further optimise the capital structure of the company.”

Citi head of Asia utilities research Pierre Lau wrote in a note on Friday, the shares’ placement price looks low, probably dragged by concerns that Beijing may soon announce a 5 to 7 per cent cut in regulated coal-fired power prices chargeable by producers to distributors following a sharp drop in coal prices.

He expected part of the proceeds to be used to fund the construction of power plants with annual capacity of 8 giga-watt, or 9 per cent of HPI’s existing total generating capacity.

The proceeds may also finance the purchase from its parent company, power plants under construction in Shandong province next year, he added.

The shares sale would trim HPI’s net debt-to-equity ratio to 142 per cent from 155 per cent, and dilute earnings per share by 3.6 per cent, assuming a 1.5 per cent net profit increase from lower interest costs due to loan repayments, according to estimates by Citi.

Analysts said an impending coal-fired power price cut and other reforms to let market forces play a bigger role in determining prices would cast a shadow over the earnings of power producers.

The mechanism, last revised three years ago, allows power prices to be adjusted whenever coal prices change at least 5 per cent over a 12-month period.

Producers’ power prices were last cut by around 5 per cent in April this year to reflect lower coal prices. Coal priced has fallen by around 11 per cent since the last power tariff cut and by almost 30 per cent since the start of the year, according to Credit Suisse.

Meanwhile, trials of a new system to allow more direct trading of power between producers and large users, by-passing grid companies, have been launched in five provinces and autonomous regions.

The move has led to lower selling prices for producers amid a glut of power generating capacity.

Further reforms involving the bidding process would see the most efficient producers take market share from weaker ones.