UPDATE 1-Li Ka-shing's utility cuts trust IPO to $3.6 bln on valuation

Sun Jan 12, 2014 8:46am EST

* Li Ka-shing's Power Assets to spin off utility into trust

* HK Electric Investments to offer 4.43 bln units in HK$5.45-HK$6.30 range

* Investment trust to pay yield of 6.26 pct-7.24 pct in 2014

By Elzio Barreto

HONG KONG, Jan 12 (Reuters) - Li Ka-shing's Power Assets Holdings Ltd slashed the size of a Hong Kong initial public offering of its electricity business by nearly one-third to $3.6 billion because of a lower expected valuation and its decision to keep a large stake in the business.

Power Assets will spin off the business into HK Electric Investments, a single-investment trust, offering 4.43 billion units in an indicative range of HK$5.45-HK$6.30 each, the company added in a filing to the Hong Kong stock exchange on Sunday. That would put the deal at up to HK$27.91 billion ($3.6 billion).

The company cut the expected maximum market capitalization of the trust to HK$55.7 billion from HK$63.4 billion announced in December.

Power Assets also said it will hold about 49.9 percent of the trust, compared with as little as 30 percent in the December filing. Based on the top market valuation of the trust and Power Assets initial plan to float up to 70 percent of the business, the IPO was expected to reach up to $5.7 billion.

The trust is expected to pay a distribution yield of 6.26 percent to 7.24 percent in 2014, the company said in the filing.

The IPO will be only the third in the city by a single-investment trust, following HKT Trust, spun off from telecoms group PCCW Ltd, and hotel owner Langham Hospitality Investments Ltd.

Power Assets said it received initial commitments worth nearly $1.34 billion from two investors for the IPO.

Government-owned State Grid Corp of China agreed to make the largest commitment as a cornerstone investor, pledging up to HK$10 billion, while Oman Investment Fund agreed to buy HK$387.5 million, the filing said.

Cornerstone investors receive a guaranteed allocation in exchange for agreeing to retain their stakes for a set period.

Goldman Sachs and HSBC were hired as sponsors of the IPO.

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