Li’s Power Assets Raises $3.1 Billion in Electricity IPO

Jan 21, 2014 10:03 pm ET

(Updates with analyst comment in fourth paragraph.)

Jan. 22 (Bloomberg) -- Power Assets Holdings Ltd., controlled by Asia’s richest man Li Ka-shing, raised HK$24.1 billion ($3.1 billion) in the initial public offering of HK Electric Investments at the low end of a marketed price range.

The company sold HK Electric units at HK$5.45 each, Power Assets said in a statement to the Hong Kong stock exchange today. About 4.43 billion units were offered at HK$5.45 to HK$6.30 apiece, according to HK Electric’s IPO prospectus.

Investors are shunning trust IPOs as stock markets advance and the Federal Reserve removes monetary stimulus, pushing interest rates higher. The low-end pricing means HK Electric will pay a higher dividend yield than similar investments including HKT Trust, which Li’s youngest son Richard took public in 2011.

“The market expects a rising yield curve after the U.S. started tapering,” said Ronald Wan, chief China adviser at Asian Capital Holdings Ltd. in Hong Kong. “So HK Electric had to offer a yield slightly above its comparables.”

The low-end price implies an estimated 2014 dividend yield of 7.24 percent, Power Assets said in a Jan. 12 filing. HKT Trust, the owner of Hong Kong’s biggest telecommunications carrier, trades at an estimated 2014 yield of 6.08 percent, according to data compiled by Bloomberg.

Trust IPOs Fall

State Grid Corp. of China, the nation’s biggest power distributor, agreed to pay as much as HK$10 billion for an 18 percent stake in HK Electric. Power Assets will hold 49.9 percent of the unit after the offering, the document showed.

HK Electric will start trading on Jan. 29, according to the prospectus. Goldman Sachs Group Inc. and HSBC Holdings Plc are joint sponsors in the IPO.

Hutchison Port Holdings Trust, also controlled by Li, raised $5.5 billion through a Singapore IPO in March 2011, according to data compiled by Bloomberg. The trust has fallen 33 percent from its offer price. Hui Xian Real Estate Investment Trust, which was spun off from Li’s Cheung Kong Holdings Ltd., has slumped 27 percent since a March 2011 IPO that raised $1.8 billion.

Li, 85, has a net worth of $29.4 billion, according to the Bloomberg Billionaires Index.

Return Cap

Under Hong Kong government rules introduced in October 2008 to curb electricity charges, the rate of return on fixed-asset spending by power generators was cut to 9.99 percent from between 13.5 percent and 15 percent. To offset the reduced returns, CLP Holdings Ltd. and Power Assets have sought acquisitions in Europe and other parts of Asia.

HK Electric, which started operations in 1890, provides electricity to about 568,000 customers, according to a pre- listing filing on Jan. 5. Proceeds from the sale will give Power Assets “the financial strength to seek acquisitions in the global power sector,” the company said in December.

Outside of Hong Kong, Power Assets has interests in assets from gas distribution to wind farms in the U.K., Australia, China, New Zealand, Thailand, Canada and the Netherlands, the company said in a statement on Sept. 27. Earnings from businesses outside Hong Kong surged from HK$700 million in 2007 to HK$5.1 billion in 2012 and accounted for more than half of the company’s profit that year, Power Assets said.

--Editor: Philip Lagerkranser