Huaneng Power International, China's largest independent power producer (IPP), is confident it will secure government approval for two proposed acquisitions. According to a document outlining the deals, the H share plans to acquire 30 per cent of the Shanghai Shidongkou First power plant and 5 per cent of the Jiangsu Taicang power plant for 415 million yuan (about HK$388.89 million). Under a sequence of asset transfers, the company plans to acquire the stakes from parent company China Huaneng Group once it secures the assets from its ultimate parent, State Power. The transactions form part of an industry shake-up that will see the state-owned monolith, State Power, broken up into competing power generation groups. A senior official at the H share said: 'We believe the chance to get the deals done is 100 per cent because the stakes are already on the list of State Power's assets to be allocated to China Huaneng. 'After China Huaneng takes control of the stakes, the stakes will be transferred to the listed company.' The structure of the acquisitions effectively circumvents a ban on acquiring or divesting State Power assets, which has been in effect since 2000. The acquisitions follow a 2.05 billion yuan purchase of a group of power plants in April from China Huaneng. The acquisitions will effectively boost H-share Huaneng's stake in the Shanghai Shidongkou First power plant to 100 per cent and the Jiangsu Taicang power plant to 75 per cent. Some analysts believed obtaining government approval was no problem. UBS analyst Alice Hui Suk-fong said: 'It's likely that the deals will be given the green light. 'There is some paperwork that the H share will have to complete, which should take a few months,' she said. Lehman Brothers analyst Angello Chan said: 'Huaneng has a sound record in delivering what it has announced. 'I believe the deals will likely go through.' Ms Hui said the proposed acquisition meant a cost of US$227,000 per megawatt, which was lower than the US$270,000 per MW which was paid in the April acquisitions. She estimated that the return on investment stood at 14 to 15 per cent, which was above the industry average. Independent financial adviser CLSA Equity Capital Markets said terms of the proposed acquisitions were fair and reasonable. JP Morgan is advising the H share over the proposals.
