* HK Electric offering 5.5-7.26 pct annualised yield
* HK Electric set to be Hong Kong's biggest IPO since 2010
* Another sovereign wealth fund to join as cornerstone
By Denny Thomas and Michael Flaherty
HONG KONG, Jan 11 Government-owned State Grid
Corp of China is coming in as the biggest cornerstone investor
in a Hong Kong initial public offering (IPO) worth up to $5.7
billion by Li Ka-shing-backed HK Electric Investments, people
familiar with the matter told Reuters.
Li's Power Assets Holdings Ltd is planning to list
its Hong Kong electricity business, HK Electric Investments, as
it seeks funds for overseas expansion. The IPO is set to be
launched on Monday, they added.
China's cashed-up state power groups have been expanding
overseas, buying up bargains in the past few years. The dominant
power distributor State Grid, which is the largest state utility
in the world, has established a presence in the Philippines,
Brazil and Portugal among other countries.
Last year, state-owned China Southern Power Grid and CLP
Holdings Ltd agreed to buy Exxon Mobil Corp's
Hong Kong power business for $3.4 billion.
Depending on the final pricing, State Grid will end up
owning more than 15 percent, or about $1.2 billion, of HK
Electric Investments after the IPO, set to be Hong Kong's
biggest since AIA Group Ltd's $20.5 billion deal in
HK Electric is slated to list on Jan 29.
Li, Asia's wealthiest person, built his business empire by
buying and selling companies across the globe. But in the last
few years, Li has been adding more power and infrastructure
businesses in Europe and other developed markets.
Cornerstone investors, including State Grid, are committing
around 35 percent, or about $2 billion based on the upper end of
the IPO estimates, one person said. The final size of the
fund-raising will depend on the eventual IPO price, which will
be determined through a book-building process.
State Grid will be joined by other cornerstone investors,
including a sovereign wealth fund, one of the people said.
Cornerstone investments in IPOs is an Asian phenomenon
whereby certain funds or high net worth individuals commit to
buy a specific number of shares at the IPO price and in return
agree to stay invested in the company for between 6 to 12 months
after the listing.
HK Electric, which started operations in 1890, provides
power to about 568,000 customers and would have a market value
of between HK$48 billion and HK$63.4 billion. Power Assets
expects to own 30 to 49.9 percent of the trust, with the
remainder sold in the market.
It would offer an annualised distribution yield of 5.5 to
7.26 percent, which has attracted investors to the deal. That
compares with 7.7 percent for Langham Hospitality and 6.2
percent for HKT Trust.
Like most power generators and distributors, Hong Kong
Electric Company operates as a regulated utility, its tariffs
and level of earnings regulated by the Hong Kong government.
Power Assets forecast the trust's consolidated profit
attributable to shareholder equity of at least HK$5.18 billion
for the year ending December 2013, falling to at least HK$2.77
billion for the year ending December 2014.
Goldman Sachs Group and HSBA Holdings are
the joint sponsors for the IPO.
Sources declined to be identified as the information is not
public. Power Assets and State Grid were not available for