China’s Datang gets a lift from parent’s stake increase move

PUBLISHED : Tuesday, 29 November, 2016, 4:15pm
UPDATED : Tuesday, 29 November, 2016, 10:55pm

Datang International Power Generation, which announced in late June it was selling its massive loss-making portfolio of coal conversion projects to its parent for a token price of one yuan, saw its shares rise after the parent agreed to buy up to HK$17.4 billion worth of the stock to help it fund new projects and repay debt.

The parent, China Datang Group, one of the big five state-owned power generation firms, agreed to buy 2.79 billion of Datang International’s Shanghai-listed A shares to be issued at 3.56 yuan each and the same number of its Hong Kong-listed H shares to be issued at HK$2.12.

The A share issue price represents a 10.55 per cent discount to the closing price on November 14, while the H shares are to be sold at a 3 per cent premium to the average closing price in the 20 trading days prior to Monday.

Of the 9.95 billion yuan A-share proceeds, some 5.55 billion yuan has been earmarked for repayment of project loans, while the rest will finance the construction of five power projects in Liaoning, Jiangsu, Hebei and Guangdong provinces.

Four of the projects have a combined annual generation capacity of 3 gigawatts, amounting to 6.9 per cent of Datang International’s installed capacity of 43.5GW at the end of June. They are co-generation projects that produce both heat and power and are high energy consumption efficiency units encouraged by Beijing. One project is also able to supply cooling besides heat and electricity.

The scale of the remaining project was not specified, but it will replace outdated small generating units with large and more efficient ones.

The proposed use of part of the proceeds from the shares issuance for the construction of power plant projects...enhances the core competitiveness of the power generation business
Datang International statement

“The proposed use of part of the proceeds from the shares issuance for the construction of power plant projects is beneficial [since it] enhances the core competitiveness of the power generation business while facilitating the sustainable development of the company,” Datang International said in a filing to the Hong Kong exchange on Monday.

“With the increase in shareholding [by the parent], the company may enjoy more support from [the parent], including ... resources, business opportunities and risk [tolerance] capacity,” the filing said.

The HK$5.92 billion to HK$6.23 billion proceeds from the H shares issuance will be for “general corporate purpose”, it added.

China Datang’s stake will rise to 54 per cent from 34.8 per cent when the stock purchases are completed.

Datang International agreed two months ago to sell its hugely loss-making portfolio of coal conversion projects, among other assets, to its parent for a token one yuan, and also agreed to waive 10 billion yuan worth of loans owed to it by the troubled businesses.

Operating losses of the troubled coal-to-chemical and coal-to-natural gas conversion operations worsened to 2.24 billion yuan from 1.8 billion yuan in the first half of the year.

Datang International said loan repayments from the A-share proceeds will help cut its “relatively high” debt-to-asset gearing ratio which stood at 71.78 per cent at the end of September.

It would also help reduce its hefty interest expenses which amounted to 11.28 billion yuan last year, during which time it made a pre-tax profit of 6.54 billion yuan, it added.

Datang’s A shares closed 3.3 per cent higher at 4.13 yuan on Tuesday, while its H shares gained 1.9 per cent to HK$2.12.