Hongkong Electric Holdings expects the profit of its mainstay power supply services on Hong Kong and Lamma islands to decline next year when a new regulatory regime takes effect, according to its managing director. Speaking after the utility's annual shareholders meeting yesterday, Tso Kai-sum said the profit decline would be offset gradually by contributions from new investments overseas. Mr Tso said the group was stepping up its overseas expansion after teaming up with immediate parent firm Cheung Kong Infrastructure Holdings (CKI) to buy a power distributor in New Zealand for a combined NZ$785 million (HK$4.62 billion) last month. 'We hope to raise overseas profits,' he said. 'The mergers and acquisitions environment is tough because the subprime lending crisis made fund-raising difficult.' Hongkong Electric, which sold 1.8 per cent more electricity in Hong Kong in the first three months of this year, will have its return on assets slashed by a third to 9.99 per cent on January 1 when the new regulatory regime takes effect. The regulated business accounted for nearly 83 per cent of the group's net profit of HK$7.44 billion last year. Mr Tso said the New Zealand project, which distributes electricity to Lower Hutt, Upper Hutt, Porirua and Wellington City, would start generating profits for Hongkong Electric 'soon'. Hongkong Electric and CKI each holds a 50 per cent stake in the project, which recorded an after-tax profit of NZ$56 million in the year to June 2007. CKI chairman Victor Li Tzar-kuoi played down the negative impact of a lower profit contribution from associate Hongkong Electric next year, saying the cash-rich firm was reviewing a number of infrastructure investments overseas. He added that the group's war chest, which stood at HK$8.2 billion at the end of last year, was continuously boosted by cash inflow from operations.