* Li Ka-shing's Power Assets to spin off utility into trust
* HK Electric Investments to offer 4.43 bln units in
* Investment trust to pay yield of 6.26 pct-7.24 pct in 2014
* HK IPOs expected to total $32.2 bln in 2014, nearly double
By Elzio Barreto
HONG KONG, Jan 13 Li Ka-shing's Power Assets
Holdings Ltd downsized a Hong Kong IPO of its
electricity business by nearly one-third to $3.6 billion, a sign
that valuations for upcoming deals in the city will need to
remain conservative to lure investors.
Power Assets will spin off the utility 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 said in a filing on Sunday.
That would put the initial public offering at up to HK$27.91
billion ($3.6 billion). It was previously expected to reach up
to $5.7 billion based on the top market valuation of the trust
and an initial plan to float up to 70 percent of the business.
"Sometimes you go up with pretty aggressive valuations, then
you start talking with investors and realize that you don't have
a huge number of institutions that are actually supporting it,"
said Philippe Espinasse, a former equity capital markets banker
at both UBS and Nomura and author of "IPO: A Global Guide".
"Then you're forced to reconsider with something that is
more palatable," he added.
Power Assets said it will hold about 49.9 percent of the
trust, compared with as little as 30 percent in the December
filing. It also cut the expected maximum market capitalization
of the trust to HK$55.7 billion from HK$63.4 billion.
While some recent IPOs in the city have soared since their
debuts, the benchmark Hang Seng index is down 2.2 percent
in the past year. That is a reality check for market aspirants
looking to ride on Hong Kong's IPO surge in the final quarter of
The Power Assets deal will be the first of several
mega-sized offerings in the city in 2014, a year that could have
some $32.2 billion in new listings, advisory firm PwC estimates.
That would nearly double the 2013 tally of $17.1 billion and
make 2014 the fourth-biggest year on record for IPOs in the
city, Thomson Reuters data show.
The Power Assets deal will also be the biggest trust IPO in
Asia ex-Japan since Li listed Hutchison Port Holdings Trust
for $5.5 billion in March 2011.
Power Assets said in December the IPO "will enable the
company to continue to pursue new acquisitions in the global
power industry, while maintaining a strong financial profile".
The reduced size of the IPO is not expected to hinder its
efforts as the company has executed previous acquisitions
without tapping the equity markets for funding.
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.
The trust is expected to pay a distribution yield of 6.26
percent to 7.24 percent in 2014, the company said on Sunday.
Goldman Sachs and HSBC were hired as
sponsors of the IPO.