Shares in mainland solar farms developer Jun Yang Solar Power Investments' rose 2.6 per cent after it unveiled a 525.5 million yuan (HK$659.2 million) stake acquisition in coal-fired power projects operator Beijing Sanjili Energy.
The deal is a major expansion by the clean-energy firm into pollution-prone fossil energy, which faces restrictions due to environmental concerns. But Hong Kong-listed Jun Yang said it was a win-win deal.
"Solar is in early development, which means it is difficult for us to rely entirely on it for stable profit generation," Jun Yang president Peng Libin said. "Meanwhile, Sanjili faces pressure to have at least 10 per cent of its generating capacity fuelled by clean energy going forward."
The purchase of the 25.7 per cent stake in Sanjili would benefit both firms, which plan to co-operate on clean-energy projects, he said.
Jun Yang has 31.5 megawatt (MW) of operating solar farms in Qinghai and Henan provinces. It aims to raise that to 500 MW within five years.
Beijing in 2009 launched a subsidy programme for solar farms, paying 20 billion yuan in assistance for more than 900 projects. The National Audit Office last month said it found developers of 14 of the projects to have abused subsidies to the tune of 245 million yuan.
Peng said Jun Yang would be cautious on acquisitions of uncompleted solar farms.
Sanjili has 4,640 MW of operating coal-fired plants and 780 MW of natural gas-fired plants in Henan and Jiangsu. It has Beijing's approval to build 1,320 MW of coal-fired units costing 4.8 billion yuan, and 2,000 MW of coal-fired units in Jiangsu at eight billion yuan.
Excluding non-recurring items like asset disposal gains and government subsidies, Sanjili booked pre-tax losses of 806 million yuan in 2010, 266.4 million yuan in 2011 and 43.6 million yuan last year. Its net asset value fell to 1.16 billion yuan at the end of last year, from 1.81 billion yuan two years earlier, due to stake acquisitions in two subsidiaries.
Jun Yang has an option to return the Sanjili stake at a pre-tax annual return of 15 per cent if Sanjili fails to list in a bourse in Shenzhen, Shanghai or Hong Kong within five years, or if its net asset value falls below 1.2 billion yuan at any year-end.
Jun Yang last year posted a loss of HK$152 million on its property and unlisted securities investment operation, a loss of HK$390 million on its clean-energy business and a profit of HK$649,000 on its money-lending operation. Its shares jumped as much as 10 per cent to 21.6 HK cents in early trade yesterday, but closed just 2.6 per cent higher at 20.1 HK cents.