CLP Holdings, looking to diversify its earnings base, will pay US$594 million to acquire 80 per cent of the regional assets of Britain-based PowerGen. In a move that analysts said will bolster CLP's earnings prospects, the power utility will more than double its overseas asset portfolio. The company's wholly owned subsidiary - CLP Power International - yesterday said the investment eventually would give it 3,650 megawatts (mw) of overseas operating power assets. CLP Power International said its overseas power assets would jump to 2,575 mw from 1,047 mw, and affirm the company's status as one of the largest independent power producers in the region. 'We think [PowerGen's] portfolio is very attractive, and it makes a very good fit to our existing one,' said Kenneth Oberg, CLP Power managing director. Moreover, 'we pay cash today, get cash-flow today along with future growth', he said. Under the agreement expected to be finalised in six to eight months, CLP Power International and PowerGen will form a joint venture to operate the British company's power plants in Australia and India. The venture will also have development rights to power projects in both Thailand and India, and also a 28 per cent interest in a proposed project in Indonesia. CLP Power International will own 80 per cent of the venture, and PowerGen the remainder. Andrew Brandler, CLP Holdings managing director, said the investment would substantially bolster earnings in the long term. However, he said it would slightly dilute earnings 'in the next couple of years'. Analysts said the investment would help to distinguish CLP Holdings from other Hong Kong utilities by giving it a prominent regional presence. 'I'm more positive on CLP than Hongkong Electric and Hong Kong and China Gas . . . because it has more potential,' said Joseph Jacobelli, head of regional utilities research of SG Securities. 'Now it can derive a more significant pool of earnings outside Hong Kong.' CLP Holdings' wholly owned CLP Power supplies electricity to Kowloon, the New Territories and Lantau Island. But some analysts warned the investment in PowerGen's regional assets would also increase CLP Holdings' risk profile because Australia's power-generating market was facing keen competition. They also pointed out that India's power-generating market was risky because regulations were not clear. But all analysts agreed the investment was reasonably priced. PowerGen's exit should not be a concern, the analysts said, because Britain's third-largest power company was cash-stretched and was retreating to focus resources on its home market. CLP Holdings would use HK$1.8 billion in cash and credit facilities and possibly bond issues to finance the investment, CLP Holdings finance director Peter Tse Pak-wing said. After the transaction, the company's gearing would increase by 'a few percentage points' from 8 per cent, Mr Tse said. The new gearing level would still be short of the 35 per cent debt ceiling set by the board, Mr Brandler said. It would also leave CLP Holdings in a capable financial position to keep looking for investment opportunities in the region, he said.
