UPDATE 2-A-Power unit signs MoU to build gas terminals, shrs up
* Total project cost estimated at $1.5 bln
* Construction to take 2 yrs, could start next year
* To also build 2,400 MW natural gas power plant
* Shares rise almost 26 pct (Adds detail, analyst comments, updates share movement)
By Adveith Nair
BANGALORE, July 10 (Reuters) - A-Power Energy Generation Systems Ltd (APWR.O) said its unit, the Shenyang Power Group, signed a memorandum of understanding with the Macau Natural Gas Co to construct a $1.5 billion offshore liquefied natural gas (LNG) complex, sending its shares up almost 26 percent.
Shares of the company, which provides distributed power generation systems in China, rose to a high of $8.99 in early trade, before paring some gains to trade up 17 percent at $8.40 later in the day. The stock was the third highest percentage gainer on Nasdaq.
"The contract is a big positive. It is by far the largest contract that A-Power has ever had," Raymond James analyst Pavel Molchanov told Reuters.
It is a sign of confidence in A-Power's ability to pull off a project of this magnitude, Molchanov said, adding that the economics should be "very significant" in the long run.
The analyst, however, pointed out that margins tend to be somewhat lower as a percentage on very big projects, but also said that as the company had not yet got the contract, margins would be up for negotiation.
"Assuming the final contract is agreed upon, revenue would begin to be generated over the process of construction. In general, on these sort of projects, revenue is recognized on a percentage-of-construction basis," the analyst said.
In a statement, A-Power said with government backing, it was hopeful that the final terms of the contract will be set out later this year and the construction phase could start sometime next year, adding that the terminals could take about two years to build.
The capacity of the LNG facilities is expected to be 3 million tons per year starting 2013, and 5 million tons per year in 2015, A-Power said.
An artificial island to be formed by land reclamation adjacent to Macau will be the site for the project.
The Shenyang, China-based company also said after the construction of the LNG terminals, a 2,400 megawatt natural gas power plant will be built at the same location.
The analyst added that while it was hard to say exactly how much the 2,400 MW power-plant contract would be for, it could be in the billion-dollar range. (Editing by Himani Sarkar)
