Tim LeeMaster – Updated on Feb 02, 2009 – SCMP
China Hydroelectric, a United States-based power company with assets on the mainland, plans to raise as much as US$200 million from an initial public offering in Hong Kong, sources said.
The company filed initial documentation with the Hong Kong stock exchange, known as an “A1″ application, in January.
Typically, the application will pass to the exchange’s listing committee for approval to sell shares within three months of filing an A1. Whether the deal is actually launched is subject to market conditions.
“Just because they have filed an A1 doesn’t necessarily mean a deal will be launched,” a source said.
The company filed initial documentation in the US last year for a share offering but did not proceed with the deal, another source said.
Deutsche Bank and Merrill Lynch have been hired to arrange the sale, the sources said.
China Hydroelectric declined to comment.
The company privately placed shares to investors twice last year, raising US$150 million in January and US$101 million in August, according to the website of US investment bank Morgan Joseph, which acted as a financial adviser on the transaction.
Merrill Lynch had invested US$70 million in the company, one of the sources said.
China Hydroelectric was formed in 2006 to acquire and operate built hydropower assets on the mainland, hoping to benefit from the passage of the country’s renewable energy law in 2006, which decreed that the national grid was required to take up all power generated from hydroelectric sources.
The company’s business model of buying assets to gain scale has become increasingly popular in the alternative energy sector as legislation mandating the use of such energy comes into effect in many countries.
Beijing is aiming to boost the use of cleaner energy sources, such as solar, hydro and wind power, as highly polluting coal accounts for about 75 per cent of mainland power generation.
“The energy sector in China is very tightly controlled and that’s partly for a good reason in that the government wants to encourage alternative energy. Our view is that successful alternative energy companies will be the ones linked directly to the government or one of the five independent power producers because access to them is
access to customers,” said Cyrus Mewawalla, a co-founder of independent research outfit CYKE Partners.
Mainland hydropower systems grew 19.5 per cent last year, accounting for about 16.4 per cent of energy output, according to alternative energy website greentechgazette.com.
Beijing wants to boost hydropower capacity to 300 gigawatts by 2020, almost triple the level recorded in 2007.
The mainland had more than 50 million kilowatts of installed capacity in the form of small hydropower plants, or power plants with less than 50,000 kW of installed capacity, at the end of last year, according to the Ministry of Water.
Such plants, mainly in rural areas and numbering about 50,000, account for a third of all installed hydropower capacity and provide electricity to about 25 per cent of the mainland’s 1.3 billion people.
Another 3 million kW will be installed this year, according to the ministry.