Power Assets Holdings, controlled by Asia's richest man, Li Ka-shing, yesterday announced a proposal to spin off its Hong Kong electricity business - Hongkong Electric.
Bloomberg quoted anonymous sources said to be familiar with the deal as saying the company was looking to raise as much as HK$38 billion via the spin-off, through a business trust structure, by the end of this year. That would make it the biggest initial public offering in Hong Kong since October 2010.
"Li Ka-shing is cashing out in a relatively good market, which is consistent with his divestment strategies," Ronald Wan, the chief China adviser at Asian Capital (HK) said. "He may want to seek overseas assets with higher growth rates as the Hong Kong electricity unit is a stable and mature business."
Power Assets has proposed spinning off the Hong Kong electricity business operated by Hongkong Electric through the listing of share stapled units to be jointly issued by HK Electric Investments and Spinco on the main board of the stock exchange. It plans to sell as much as a 70 per cent interest.
After the spin-off is completed, Power Assets said it would have an interest of not more than 49.9 per cent and not less than 30 per cent in the Hong Kong division. It would then focus on power-related facilities and projects outside Hong Kong.
Kenny Tang Sing-hing, a general manager at AMTD Financial Planning, said: "It is reasonable for the company to spin off the Hong Kong power business as the business lacks growth. Their internal rate of return is low and has a yield of only 9.9 per cent, compared with a return of 14 to 15 per cent for the businesses in Australia and Europe."
Power Assets has submitted the listing application to the exchange and has appointed Goldman Sachs (Asia) and HSBC Corporate Finance as the joint sponsors for the listing.
Li has been pulling out from assets in Hong Kong and the mainland, with plans to offload HK$40 billion of assets, including the possible sale of the ParknShop supermarket chain.
Power Assets said yesterday the spin-off was a commercial decision and should not be seen as a withdrawal of capital from Hong Kong.
Tang said it would still be the controlling shareholder after the spin-off.
Hongkong Electric, which started operations in 1890, provides electricity to about 568,000 customers on Hong Kong and Lamma islands.
It reported a profit of HK$4.5 billion last year and had a net asset value of HK$5.6 billion at the end of last year.
Power Assets also has interests in assets from gas distribution to wind farms in Britain, Australia, mainland China, New Zealand, Thailand, Canada, and the Netherlands.