* Exxon sells to CLP and China Southern Power Grid (CSG)
* Deal marks state-ownded CSG's first overseas investment
* CLP to use internal cash and bank loan to fund the deal
* CLP bought stake from Exxon through two years of
By Denny Thomas and Charlie Zhu
HONG KONG, Nov 19 Exxon Mobil Corp has
agreed to sell its 60 percent stake in a Hong Kong utility and a
power storage firm for a combined $3.4 billion, helping the U.S.
oil major raise funds to plough back into its core operations.
Many integrated global oil companies have struggled to boost
production, spending heavily on new projects in recent years. In
the first nine months of this year, Exxon, the world's biggest
oil firm by market value, spent $33 billion.
They are also keen to put cash in the pockets of investors
through asset sales, share buybacks or dividends as analysts
grumble about lagging stock prices.
Under the deal, CLP Holdings will assume control
of Castle Peak Co Ltd, one of Hong Kong's two electricity
providers, lifting its stake to 70 percent by buying half of
Exxon's holding for HK$12 billion ($1.6 billion). CLP also plans
to buy Exxon's 51 percent stake in Hong Kong Pumped Storage
Development Co for HK$2 billion.
State-owned China Southern Power Grid (CSG) will buy the
other 30 percent held by Exxon, making it its first offshore
investment. CSG did not disclose financial terms. But, Betty
Yuen, a senior executive at CLP, told reporters that CSG also
paid HK$12 billion for the 30 percent stake.
CLP, which is backed by the wealthy Kadoorie family and has
been providing electricity to Hong Kong for over 100 years, said
the deal will help it better manage and coordinate its Hong Kong
power generation and distribution business.
By partnering up with CSG in the acquisition, CLP would have
more options in terms of importing electricity generated by
clean fuels in mainland China to Hong Kong via CSG's grids, CLP
CEO Richard Lancaster said.
CLP, like many power producers around the world, is under
pressure to cut emission. Lancaster said CLP will use more
natural gas for generation in the next couple of years.
Currently, coal accounts for about 45 percent of CLP's power
generation, while nuclear makes up 35 percent and the rest comes
from natural gas from central Asia and a field in the South
Castle Peak Power Co Ltd owns three power stations in Hong
Kong with a total power generation capacity of 6,908 megawatts,
including a 4,108-MW coal-fired plant called Castle Peak and the
2,500-MW gas-fired Black Point power station.
The sale of the stake from Exxon came from two years of
"bilateral discussion" with the U.S. oil major instead of an
auction, Lancaster told reporters.
People familiar with the matter had told Reuters that Exxon
ran an auction to find a buyer for half its stake earlier this
year. While the sale process elicited some interest from
Japanese and Southeast Asian bidders, CLP was seen as the
natural buyer given its 40 percent existing shareholding, they
CLP and Power Assets Holdings Ltd, Hong Kong's
other power supplier, garner an annual return of 9.99 percent on
net fixed assets until 2018 under a government programme.
Power Assets, controlled by tycoon Li Ka-Shing, has
announced plans to spin off its Hong Kong electricity business
through a Hong Kong IPO, which could raise up to $5 billion.
CLP is increasing investment in Hong Kong because of growing
population and power demand, Lancaster said.
CLP will use internal resources and a HK$10 billion bridge
loan facility from HSBC Plc to fund the
acquisition, which CLP executives say should be completed around
"We have plenty of firepower to complete the acquisition,"
said chief financial officer Mark Takahashi, adding that CLP
already has HK$16 billion undrawn loan facilities and HK$3
CLP will look at "a range of funding sources from loans to
bonds to possible hybrid securities and even possibly equities"
to replace the bridge loans when they expire, he added.
Castle Peak's profit rose 2.7 percent to HK$3.1 billion for
year ended Dec. 31, 2012, when it had net assets of HK$540
CLP said it was advised by Evercore Partners and HSBC while
CSG said it was advised by Morgan Stanley and China
International Capital Corp. Barclays Plc advised Exxon,
a person familiar with the matter said.