VPower launches HK$1.94 bn IPO to fund expansion into emerging markets

VPower Group, which generates electricity from natural gas and diesel-based engines in regions of China and Southeast Asia short of energy supply, aims to raise HK$1.94 billion via an initial public offering to fund further expansion, particularly emerging markets in Africa and the Middle East.

The Hong Kong-based firm was founded in 1997 by chairman Samson Lam Yee-chun who began selling back-up generators to factories in the mainland, after having worked as a project engineer in the Hong Kong unit of US power generation engine major Cummins Engine, now its biggest rival in Asia.

In 2001, he co-founded VPower with co-chief executive Jason Lee Chong-man, and set up a facility in Shenzhen in 2003 to maintain and provide after-sales services and assemble generator sets.

Revenue grew from HK$575.8 million in 2013 to HK$1.21 billion last year.

Of last year’s sales, 80 per cent came from buying and installing generators for customers – mostly in China and other Asian nations – and the rest from charging customers for power produced by generators it invested and installed in Bangladesh, Indonesia and Myanmar.

Chief financial officer Keith Chan Kam-shing said VPower has bought “all-risk” and political insurance that would provide “relatively sufficient” protection to its emerging market assets, although its listing prospectus said it is not protected against war, terrorism, expropriation, nullification of contracts and currency exchange restriction risks.

Net profit grew to HK$141.2 million last year from HK$9.3 million in 2013.

For the year’s first five months, revenue surged 72.6 per cent year-on-year to HK$509 million but net profit slid 4.9 per cent to HK$28 million.

Chief commercial officer Earnest Cheung Yeung said the fall was due to the booking of expenses related to its IPO which saw administration expense jump 61 per cent to HK$76.3 million.

The company also blamed the week-long Chinese New Year holiday for the small five-month revenue and profit figures, relative to those of its full-year.

VPower has made no forecast for this year’s profit in its listing prospectus. It plans to distribute up to 25 per cent of its net profit as a dividend in the first post-listing financial year.

It will start offering on Monday 560 million shares at HK$2.78 to HK$3.47 each, or 52 to 65 times last year’s earnings per share. State-backed conglomerate Citic has committed to buy around 37 per cent of the shares that would give it a stake of up to 8 per cent.

State-owned railway car giant CRRC, which helps VPower win business and build power plants overseas and provide lower-cost financing for its equipment purchases, last year bought a 3 per cent stake in the firm and would see its shares’ value rise by up to 71.8 per cent upon its listing.

VPower has a five-year cooperation agreement with CRRC in the so-called “one belt, one road” nations, with which Beijing supports economic cooperation, especially on infrastructure investment for which stable power supply is key. But the firms have not signed any non-competition agreement with each other.