China’s largest power company China Huaneng Group has emerged as the winner in an auction of a 50% ownership interest in Massachusetts-based power utility InterGen. The stake was sold by India’s GMR Group for $1.232 billion.
Huaneng, a Chinese state-owned enterprise, will gain access to 12 power plants in the UK, Mexico, the Netherlands, Australia and the Philippines with a total gross operational capacity of 8,146 megawatts. The other 50% of InterGen is owned by the Ontario Teachers’ Pension Plan, the largest single-profession pension plan in Canada.
GMR Group, which focuses on developing infrastructure assets, acquired the 50% interest in InterGen in October 2008 from AIG Highstar, a fund owned by American International Group (AIG), at an equity value of $1.135 billion. The Indian firm said it is selling the stake to enable it to enhance its focus on the Indian market. However, GMR’s decision to sell could also have been prompted by a number of competing demands on its financial and management resources.
GMR announced just a few days ago that it has achieved financial closure for a $511 million project to modernise, expand and operate the Male International Airport in the Maldives. A consortium of GMR and Malaysia Airports Holdings won the concession for the Male Airport for a 25-year period earlier this year. GMR will now operate four airports: Delhi, Hyderabad, Istanbul and Male.
The sale of the InterGen stake will release $225 million of equity that can be used to fund GMR’s projects, G M Rao, chairman of the Bangalore-based group, said in a written statement. Bank of America Merrill Lynch worked with GMR on the sale, and White & Case provided legal advice.
This is the second cross-border acquisition by Huaneng following its $3.01 billion bid to buy Singapore’s Tuas Power in March 2008. Back then, Credit Suisse worked with Temasek, who owned Tuas Power and two other power generation companies which were also subsequently sold, on the sell-side. Now, Credit Suisse is on the buy-side, advising Huaneng on its bid for the InterGen stake.
The deal is subject to regulatory approval in each of the jurisdictions in which InterGen has operating assets as well as in China, and is expected to close by mid-2011.
Meanwhile, Huaneng Renewables Corporation, the wind-power unit of Huaneng, yesterday kicked off institutional marketing for a Hong Kong initial public offering of between $965 million and $1.28 billion. A separate story on that deal is also published on our website today.
Huaneng's acquisition comes close on the heels of an announcement that Bridas Corporation will buy BP’s 60% stake in Argentina-based oil and gas company Pan American Energy for $7.06 billion. Bridas is a joint venture between another Chinese SOE, China National Offshore Oil Company (CNOOC), and Bridas Energy Holdings, which is owned by Argentina's Bulgheroni family.
Chinese companies are increasingly taking centre stage in M&A auctions for energy and natural resources assets. Hitherto, they have been backed by liquidity from a strong domestic banking system, leading to noise from other bidders that Chinese winners were in fact subsidised by the government, making it a non-level playing field. However, sources say Chinese SOE acquirers have recently been directed by Chinese policymakers to finance their cross-border M&A deals through market borrowings. Huaneng could be a test case of how serious the government is about SOEs raising money outside the Chinese banking system, said sources close to the deal.
