Hong Kong utilities company CLP has agreed to buy stakes in two Exxon Mobil units for HK$14 billion ($1.8 billion).
CLP, controlled by the wealthy Kadoorie family, will buy a 30% stake in Castle Peak Power, which owns three coal fired power stations in Hong Kong, for HK$12 billion, taking its ownership up to 70%.
China Southern Power Grid, a state-owned group, will buy the remaining 30% stake in Castle Peak Power for HK$12 billion, its first offshore acquisition.
CLP will also buy the remaining 51% stake in Hong Kong Pumped Storage Development for HK$2 billion, which will see the entity become a wholly-owned subsidiary after the acquisition.
In total, Exxon is raising HK$26 billion ($3.4 billion) through the deal.
CLP had previously jointly owned the two units with Exxon and had been in protracted discussions with the US oil and gas group to buy part of the remaining stake for more than a year. These discussions were held up due to differences over valuations, according to one source familiar with the matter.
Exxon had initially looked for buyers for its 60% stake and subsequently hired Barclays to run an auction process to sell nearly half of that 60%, according to reports. The US group was looking to sell its stakes in both units as the utilities sector is not part of its core business.
“The company opted to go for a bilateral arrangement, instead of agreeing to a buyer from the auction process, and one can surmise they didn’t get a better offer from the auction,” said one source familiar with the matter.
There were few comparables for the deal, given that utilities business in Hong Kong is heavily regulated and few assets have exchanged hands.
In the end, the deal was struck at a price to earnings multiple of 13 times, based on 2012 earnings, which is earnings accretive as CLP trades at a multiple of 16-17 times. About two-thirds of CLP’s business comes from Hong Kong and the rest from overseas markets including Australia, India and China.
The deal will allow CLP, which distributes and transmits electricity, to consolidate its position in Hong Kong with control over a larger part of the value chain. CLP and China Southern Power Grid have an existing relationship, as CLP already provides electricity to the latter.
Castle Peak Power had post-tax net profit of HK$3.1 billion in 2012 while Hong Kong Pumped Storage Development had a post-tax net profit of HK$163 million. The deal is expected to close mid 2014, subject to regulatory approvals.
HSBC and Evercore were advisors to CLP. The former is also one of the sponsors for the spin off listing of Hong Kong Electric, another deal in the Hong Kong utilities space. The deal will be paid in cash and HSBC is providing a HK$10 billion loan facility to fund the acquisition. Barclays advised Exxon Mobil and Morgan Stanley advised China Southern Power Grid.
