CLP to buy assets to expand, as it aims to be the first Hong Kong utility to sell shares in India IPO
- Hong Kong power firm CLP and its Canadian partner CDPQ aim to double CLP India’s scale and float its shares, through low-carbon projects
CLP Holdings, the larger of Hong Kong’s two power utilities, aims to double the size of its India unit via acquisitions and new-build projects in the next five years and list it on the local bourse, according to its finance chief.
It is the joint ambition of CLP and its new partner, Caisse de dépôt et placement du Québec (CDPQ), the Canadian public pension-fund manager that recently bought a 40 per cent stake in the unit from CLP, said Geert Peeters, a 30-year industry veteran and Belgian national who grew up in Rwanda in a missionary family.
“As part of the partnership agreement, there is an ambitious business plan where both parties commit to grow [the business],” he told the South China Morning Post in his first interview with the Hong Kong media since joining CLP in 2014. “The ambition is to be about twice as big as we are now in five years.”
If it achieves that target, the unit will reach the “critical mass” scale suitable for a potential initial public offering on an Indian bourse, he said.
He emphasised that the stake sale to CDPQ and the potential shares sale through IPO are not moves to “sell out”, but rather to bring in strategic partners and local ownership to help it tap opportunities amid India’s fast-growing energy needs, especially low-carbon electricity.
“We have a strong belief that sustainable infrastructure is only sustainable if it is also owned by the communities that pay for it,” he said, declining to give a time frame for the IPO. “The Indian middle class has been building up savings, some of which were used to buy bonds such as the green bond we issued.”
CLP India owned 2,949 mega-watts of generating capacity at the end of June this year, including 655MW of natural gas-fired plants, 1,320MW of coal-fired units, 924MW of wind farms and 50MW of solar capacity. Its future capacity expansion will primarily come from renewable projects.
It was the first power utility to issue a green bond in South and Southeast Asia, according to CLP, raising 6 billion rupees (US$82 million) three years ago.
Peeters said its goal of doubling operating scale could be measured in terms of generating capacity, or if it succeeds in entering the power transmission and distribution business, it could be measured by its enterprise value – the sum of equity and debt, less cash holdings.
In the middle of this month, it lost out to Indian financial group Sekura Energy in a bid to buy two operating and two under-construction power transmission projects, whose combined enterprise value was 60 billion rupees (US$820 million).
CLP India is interested in grid assets since the development of renewable energy projects can only be sustainable if they are “synchronised” with appropriate development of grid infrastructure as well as economic growth, Peeters said.
He said some companies have been too aggressive in their bids to obtain development rights for solar power projects in India and are under pressure to sell assets, providing acquisition opportunities to CLP India.
CLP posted a 3.7 per cent year-on-year rise in net profit to HK$251 million for the first six months of the year in India, its second biggest overseas market after Australia.
Although the company was studying the feasibility of building a major coal power project in India as recently as 2014, it has since dropped the plan even though there is still demand for such plants and CLP could transfer cost-effective Chinese technology.
Other than Vietnam, where CLP has been working with the government in the past decade on potentially building two coal-fired plants, the firm has no plans to build more in other nations, Peeters said.
Whether the projects will go ahead will depend on the Vietnam government’s decision on how it will deliver on its carbon reduction commitment as pledged in the Paris greenhouse gas emissions mitigation agreement in 2015. It will also hinge on the results of CLP’s negotiations on a power purchase agreement and government undertaking so that banks will agree to finance them.
Meanwhile in Hong Kong, CLP has accelerated its efforts to acquire and test technologies required for it to meet the needs of the “utility of tomorrow”, including data analysis, artificial intelligence and “smart” power meters.
As Hong Kong further tightens emission requirements on its power utilities in the next decade, CLP will need to ensure its grid infrastructure can “react much faster” to rising demand, supply and import of clean energy from domestic buildings’ roof tops and power grids across the border, Peeters said.
It has been co-investing with start-ups in Australia, Israel, Shanghai and Shenzhen to develop and roll out such technology in markets including Hong Kong and Australia.