Huadian Power International has raised Rmb7.15 billion ($1.12 billion) from a hotly contested A-share private placement, China's largest follow-on offering from the utility and energy sector in about five years.
In spite of the fragile investment backdrop following weeks of Chinese stock market turmoil, the Chinese power generator successfully sold about 1.06 billion shares to 10 institutional investors, including controlling shareholder China Huadian Corporation, a filing with the Shanghai Stock Exchange showed on Thursday.
Huadian Power, which initially set the price for the offering at Rmb4.77 per share on May 26, lifted the final price to Rmb6.77 per unit thanks to strong demand, with a total of 31 institutional investors applying for the shares, a source close to the deal told FinanceAsia.
The final price tag represents a 14% discount to the pre-deal stock price. Huadian Power's share price ended Thursday down 5.61% at Rmb7.40.
“Amid the A-share stock market tumble, blue-chip stocks [like Huadian Power] are more recognised and endorsed by institutional investors, as they could perform [more] steadily,” the source involved in the deal told FinanceAsia, .
He described the 14% discount as “uncommon” given an average discount for the sector nearer 30%.
Huadian Power’s successful transaction comes at a difficult time for Chinese stock markets, which have fallen sharply from their summer peaks, prompting a series of government interventions, including the suspension of initial public offerings and a slowing in the pace of share placements.
According to data provider Dealogic, Huadian Power’s offering is the country’s largest A-share placement in the utility and energy sector since Guodian Power Development, another large power generator, raised $1.43 billion in December 2010.
Its parent China Huadian Corporation subscribed to 20% of the placement, followed by Shenergy Company, a Shanghai-based power generator, which purchased 13.5% of the new shares. Other investors include securities houses and fund management firms.
According to the filing, the proceeds will be used to construct two large power projects in Chongqing, a mega city in the southwest of the country, and Shandong, a large agricultural province and home to the company, as well as to replenish capital.
“We believe the private placement will help the company optimise its balance sheet and reduce financial cost, hence contributing to profitability improvement,” analysts at Shenwan Hongyuan, a large domestic broker, said in an August 24 note.
In the first half of this year, revenue at Huadian Power was Rmb30.6 billion, down 9.5% year on year. Its net profit was Rmb3.5 billion, up 31% year on year thanks to a big drop in the cost of coal-fired units.
Established in 1994, Huadian Power has quickly developed from a localised conventional power generator to a large producer across the country, with a diversified power generation structure comprising coal fire, gas fire, wind, and hydropower. It listed in Hong Kong and Shanghai in 1999 and 2005, respectively.
The parent China Huadian Corporation is one of the country’s big five state-backed power generators and originally owned about a 50% stake in the listed subsidiary, which it lowered to 45% after the placement.
On Thursday, Huadian Power's share price ended down 5.48% at Rmb7.41 in Shanghai but advanced 0.77% in Hong Kong.