Queensland Investment Corp files compensation claim against CLP Holdings for HK$5.6b

PUBLISHED : Friday, 19 May, 2017, 4:39pm
UPDATED : Friday, 19 May, 2017, 10:58pm

Queensland Investment Corp has initiated legal proceedings against Energy Australia, the Australian unit of CLP Holdings, seeking HK$5.6 billion in compensation for what it says was incomplete or misleading disclosures in a HK$10 billion asset sale.

The claims pertain to “certain representations” made under the relevant asset disposal agreements related to the “technical performance” of the Iona natural gas processing and storage plant in Victoria state, CLP said in a filing to the Hong Kong stock exchange at the midday trading break on Friday.

CLP said its Australian units “intend to vigorously defend the claims”.

“On the basis of currently available information, the company’s view is that a material outflow of economic benefits from the CLP Group is unlikely,” CLP said in the filing.

Lochad Energy, Iona’s buyer, claimed that CLP’s Australia subsidiaries Energy Australia and Energy Australia Investments “deliberately or recklessly” failed to inform bidders during the sale of the plant about significant capacity constraints that would have a major impact on offer prices, the Australia Financial Review reported, citing documents lodged in the Supreme Court of Victoria on Friday.

CLP’s shares ended Friday’s session 1.4 per cent lower at HK$82.95, compared to a 0.2 per cent rise of the Hang Seng Index.

CLP booked a one-off disposal gain of HK$6.62 billion (US$850.8 million) from the sale of the Iona facilities in 2015, as part of a restructuring of its power generation assets in Australia amid weak demand growth and generating capacity oversupply.

The Iona sale was completed in December 2015. CLP’s Australia unit received a “statement of claim” from Lochard, which is wholly-owned by the Queensland Investment Corp, an investment arm of the state government set up in 1991.

The facilities in question include a gas processing and compression plant at Iona in southwest Victoria, and three underground gas storage reservoirs in the state.

The plant provides gas injection, storage and withdrawal services to both the Victoria and South Australia states’ gas markets.

“As at the date of this announcement, no accounting provision for the claims has been made in the accounts of the CLP Group,” CLP said in the filing.

CLP posted an operating profit of HK$12.3 billion for 2016, a gain of 7.1 per cent from 2015.

The company said 15 per cent of the earnings was derived from Australia, compared to 12.3 per cent from mainland China and 70 per cent from Hong Kong.

Earnings from operations in Australia surged 121 per cent to HK$1.85 billion last year from 2015.

Part of the improvement was attributed by chief executive Richard Lancaster to lower interest expenses after CLP used the proceeds from the Iona assets sale to repay debt.

CLP’s overall finance costs fell 45 per cent to HK$2.26 billion from 2015.

CLP said in its results filing that it expected to make commitments to build around 500 mega-watts of new wind and solar farms across eastern Australia, which would help the nation achieve its target of 23.5 per cent of national electricity consumption from renewable energy by 2020.

CLP chairman Michael Kadoorie earlier this month expressed discontent with Australia’s regulatory environment in the energy sector.

He said the nation’s “considerable market volatility and energy policy uncertainty” has made it difficult for investors to make long-term commitments in the sector to meet the demand for reliable, affordable and cleaner energy.

Analysts noted some state governments have set more aggressive renewable energy targets than that of the federal government, adding more pressure to reduce output or shut down coal-fired plants.

CLP owns stakes in two Australian coal-fired power plants with total generating capacity of 2,880 MW and three natural gas-fired plants totalling 639 MW. It also has 66 MW of wind farms.