CLP and China Southern negotiate to acquire stake in Hong Kong power provider

• 12 years ago (2012-03-17)
• Junior Isles

Asia 848 North America 998

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Chinese regional power utilities, CLP Holdings and China Southern Power Grid Co, are to pay around $2.8 billion for a 60 per cent stake in Hong Kong power provider Castle Peak Power Co Ltd, currently held by ExxonMobil.

Hong Kong-based CLP, which owns and operates power plants in a portfolio that ranges from China to Australia, said that it and state-owned China Southern were in talks to buy ExxonMobil's stake in Castle Peak. CLP hopes its partnership with China Southern will assist in other negotiations to secure deals for Chinese natural gas for its Hong Kong plants.

An industry source estimated the deal to "be worth at least several billion US dollars", and also speculated that ExxonMobil would be interested in selling the assets as it attempts to focus reinvestment on its core business of oil and gas.

CLP already holds 40 per cent of Castle Peak, which owns three coal-fired power stations with a total generation capacity of 6908 MW.

RBS analyst Jenny Cosgrove estimated ExxonMobil could fetch up to HK$22 billion ($2.83 billion) from its stake in Castle Peak, which benefits from an annual return of 9.99 per cent on its net fixed assets until 2018, under the ‘Scheme of Control’ programme.

The deal, if completed, would become the first major acquisition by China Southern since its 2002 establishment.

The prospect of joint purchase by CLP and China Southern would pave way for further integration of power grids in Hong Kong and neighbouring Guangdong, analysts suspect. China Southern currently services Guangdong, Guangxi, Guizhou, Yunnan and Hainan.

It is currently unclear how CLP plans to fund its purchase. CLP had HK$3.2 billion in cash and HK$65 billion of total debt at end-2011, with a debt to total capital ratio at 45 per cent.