Huaneng Renewables to raise $204 million

Private placement priced at a 7.5% discount and allocated to 10 institutional investors over the long weekend.
Huaneng Renewables will sell approximately 582.3 million new H-shares at HK$2.71 apiece.
Huaneng Renewables will sell approximately 582.3 million new H-shares at HK$2.71 apiece.

Hong Kong-listed wind power producer Huaneng Renewables will raise HK$1.58 billion ($204 million) from a private placement of new H-shares carried out over the three-day weekend, which ended on Monday.

According to an announcement on the Hong Kong stock exchange website, the Chinese company will sell approximately 582.3 million new H-shares at HK$2.71 apiece.

The price is slightly lower than the HK$2.80 per share at which Temasek sold its entire 5.3% stake in the company in July and represented a 7.5% discount to Friday’s closing price of HK$2.93.

The Hong Kong market was closed for a public holiday on Monday.

The sale was carried out through a private placement, which means that the shares had to be placed with between six and 10 investors. This type of sale, which is typically done without a term sheet and with the bookrunner approaching a select group of investors only, has become popular with Chinese-incorporated companies that have H-shares listed in Hong Kong since they do not have to issue any shares to the National Social Security Fund (NSSF) in connection with the deal.

If Huaneng Renewables had decided to carry out a public placement it would have had to issue new shares corresponding to 10% of the transaction to the NSSF free of charge.

Sinopec raised $3.1 billion through a private placement of H-shares in February, while Sinopharm Group, China’s largest distributor of pharmaceutical products, used the same method to raise $526 million in late March.

Any negative impact on the share price also tends to be smaller in connection with a private placement since there are fewer potential sellers and the deal often is not flagged to the wider market until after it has been completed. Investors like them for the same reason and because they can typically get a more meaningful allocation than on a public deal.

For the bankers, these deals have helped to put some margin back into a business (block trades and placements) that has been getting increasingly competitive in the past couple of years, resulting in lower fees. Companies are typically willing to pay a bit more for the banks to find the right investors to take up a private placement.

Credit Suisse was the sole bookrunner for the Huaneng Renewables deal and, according to a source, it placed the shares with the maximum 10 investors. The buyers were all institutional investors and included several existing shareholders and other fundamental investors who know the company and the sector, a source said. He added that there was excess demand and a couple of accounts that were interested in the deal received no shares at all.

As of June 30, Fidelity was the largest international investor, holding about 12% of the H-share capital and 4.15% of the company as a whole. Invesco owned 5.2% of the H-shares and about 1.8% of the company as a whole. There was no information about whether either of them participated in the deal, however.

The bookrunner started approaching potential investors on Friday afternoon last week and the shares were allocated while the Hong Kong market was closed on Monday.

The new shares accounted for 20% of Huaneng Renewables’ existing H-share capital, which is the most it can sell without seeking a special approval from its current shareholders. Including the company’s domestic shares that are all held by parent company China Huaneng Group, the transaction accounted for 6.4% of the total enlarged share capital.

China Huaneng Group will own 61.3% of the enlarged share capital following this deal, which is expected to be completed by October 21, assuming all the necessary approvals are in place by then.

Huaneng Renewables did not specify what it will use the money for, saying only that it will go towards general corporate purposes.

However, the market responded well to the deal with the share price gaining 1.4% to HK$2.97 on Tuesday. That took it back to the level where it traded before Temasek’s $56 million sale in July and just two cents below its 2013 high of HK$2.99 that it reached the week before Temasek decided to sell.

The stock fell 5.1% the day after the Temasek sale, which was priced at a 5.7% discount, and continued to edge lower in the following weeks, reaching a low of HK$2.26 on September 9. Since then it has been on a steady upward trend.

The company posted a 162% increase in net profit to Rmb646.1 million ($105 million) in the six months to June from a year earlier as it benefited from the government’s curtailment of new wind power projects as a way to deal with grid congestion. Huaneng Renewable was able to increase both its capacity utilisation and power output as a result.

Revenues increased by about 58% year-on-year to Rmb2.87 billion.

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