CGN Power raised HK$24.52 billion ($3.16 billion) on Wednesday after pricing its initial public offering at the top, Hong Kong’s biggest IPO of the year.
The deal surpassed HK Electric’s HK$24.1 billion flotation in January but its reign could be short-lived as Dalian Wanda Commercial Properties aims to raise up to $6 billion in its own listing before year-end.
According to Dealogic, the deal is also the world's largest energy and utility IPO of 2014, with two of the top three IPOs in the sector listing in Hong Kong.
Retail and institutional investors clamoured to get a piece of China’s largest nuclear energy producer, clearly expecting the company to benefit from the mainland’s power policy, which encourages clean energy.
The retail book closed on Tuesday and was oversubscribed by 250 times, according to sources close to the deal.
In its prospectus, the company said it would boost the retail tranche — initially slated to account for 5% of the offering — to 20% of the total, while the institutional tranche was scaled back to 80%.
Demand allowed CGN Power to sell 8.82 billion shares, all primary, at HK$2.78 per unit, the top of the indicative price range of HK$2.43 to HK$2.78 per unit.
It was clear from the start of the formal bookbuild that the deal was going to be a big hit.
Some $1.3 billion was set aside for 18 cornerstone investors before books opened, a mix of hedge funds, long-only institutional investors and power companies.
These included powerhouses such as Och-Ziff Capital Management, Singapore’s sovereign wealth fund GIC, and China Development Bank. Combined, the three invested $310 million in CGN Power.
Other cornerstones included China Southern Power Grid, China Yangtze Power, Hong Kong hedge fund Value Partners and E Fund Management, who each pledged $100 million. China Reinsurance Corp and China Life Insurance, meanwhile, will invest $75 million each and China Cinda Asset Management and China Minmetals Corp will allocate $50 million to the nuclear power company.
The shares on offer represented 20% of the enlarged share capital, with a traditional six-month lockup in place for the 18 cornerstones. The controlling shareholders meanwhile will be locked up for one year.
The timing of the flotation coincided with the Chinese government’s drive to curb pollution by diversifying its energy generation away from fossil fuels.
CGN Power already currently generates about 9.4 gigawatts, or half of China’s total nuclear energy output. In January, the government announced its intentions to add 8.6 gigawatts of nuclear power capacity. In response to this, CGN plans to use proceeds to construct new stations. It will also acquire a 41% stake in the Taishan nuclear power project.
There are currently 22 operational nuclear power reactors in China and 26 under construction, according to the World Nuclear Association.
China suspended approvals for new nuclear power plant construction after the Fukushima disaster in Japan in 2011. However, China has indicted it plans to lift these restrictions before year-end as part of its environmental efforts.
Safety concerns remain a paramount issue but nuclear energy has strong advantages over more traditional power sources, such as a stable power supply, zero emissions and cost efficiencies, all of which would be tremendously beneficial for China’s high-end equipment manufacturers.
Additional reporting by Jing Song