By Prudence Ho and Yvonne Lee
HONG KONG--China's largest nuclear power plant operator has
already sold 40% of its coming US$3 billion Hong Kong initial
public offering to cornerstone investors, a sign that interest for
what is set to be China's first listed pure nuclear play is heating
up.
If the IPO kicks off next week ahead of a December listing, as
scheduled, CGN Power Co. Ltd.'s IPO will be Hong Kong's biggest
since January. It would also be the first pure nuclear plant
operator to list anywhere in the world since British Energy Group,
since delisted, went public in London in 1996, according to
Dealogic.
Investors who have attended informal meetings with CGN's bankers
have been enthusiastic about the firm, say people familiar with the
IPO process. CGN, which will start taking orders from investors
next week, has won commitments from at least 15 investors including
GIC Pte Ltd., Singapore's sovereign-wealth fund, and hedge fund
Och-Ziff Capital Management Group LLC.
The last time a Hong Kong IPO had so much demand before formal
roadshows, or order-taking, took place was in January, when Hong
Kong billionaire Li Ka-shing's electric company raised US$3.1
billion. Mr. Li's HK Electric Investments also managed to get
around 40% of its IPO sold to cornerstone investors, or investors
that pledge to hold their stake for a few months after a company
goes public.
CGN is planning to list Dec. 10, other people familiar with the
situation said earlier, adding the timetable is subject to market
conditions.
While CGN's preliminary prospectus points to volatile uranium
prices and protests from green groups as potential risks, fund
managers say they like this company, a market leader in an industry
Beijing is pushing to develop. CGN controls around 64% of China's
nuclear power generation. Beijing-based China National Nuclear
Power Co., the other big nuclear plant operator in China, is
currently awaiting approval to list in Shanghai.
"There is a scarcity value for the company [CGN] as no other
nuclear power firm has been listed currently," said Alex Wong, a
director of asset management at Ample Capital Ltd., adding that his
fund is likely to buy in the offering. "I won't be surprised to see
CGN pricing at above 20 times forecast earnings."
Hong Kong electricity firm CLP, which is one of the cornerstone
investors in CGN, trades at 16 times 2015 earnings, while China's
Huaneng Renewables Corp., a big player in wind energy, is trading
at 12.4 times. Japan's Tokyo Electric Power Co., which shut its
reactors after the Fukushima nuclear power plant leak a few years
ago, is trading at 4.5 times, while U.S. firm Duke Energy Corp. is
trading at 16.8 times, according to S&P Capital IQ.
Chinese state firms that have bought into CGN include China
Reinsurance (Group) Corp., China Life Insurance Co., China
Development Bank Corp., China Cinda Asset Management Co., Beijing
Jingneng Clean Energy and China Minmetals Corp., people with direct
knowledge of the deal said, adding more names may join the
list.
China is building more nuclear plants to reduce its reliance on
coal, and has set a target to get nuclear power make up 2.7%, or
40,000 megawatts, of its total power capacity by 2015, up from less
than 2% currently.
"With China encouraging clean energy, government policy should
favor CGN, " said Ben Kwong, head of research at KGI Asia.
CGN operates 11 reactors mainly in China's southern Guangdong
province, where the power grid is the company's top customer. In
the first six months of the year, CGN saw net profit drop 3% to
2.57 billion yuan (US$420 million) due to higher finance costs, but
its sales of electricity rose 19%, according to its prospectus. IPO
proceeds will go toward buying a stake in a nuclear power station
owned by its parent, CGNPC, as well as building more plants.
CLP confirmed the investment, while CGN and GIC declined to
comment. Other cornerstone investors couldn't immediately be
reached for comment.
P.R. Venkat contributed to this article.
Write to Prudence Ho at prudence.ho@wsj.com and Yvonne Lee at
yvonne.lee@wsj.com
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