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CLP, China Grid ‘set to buy Exxon’s Castle Peak stake’


Sale would help US oil giant concentrate on core business while assuring CLP of stable supplies of Chinese natural gas for HK power plants

Mar 17, 2012

Regional power utility CLP Holdings (SEHK: 0002) and China Southern Power Grid are likely to pay about US$2.8 billion for a 60 per cent stake held by ExxonMobil in a Hong Kong power venture as the oil major seeks to divest its non-core assets.

By raising its existing holding in Castle Peak Power in partnership with one of China’s two main power grid companies, CLP would be able to secure Chinese natural gas for its Hong Kong plants, analysts say.

Hong Kong-based CLP, which owns and operates power plants from China to Australia and Thailand to India, said late on Thursday that it and state-owned China Southern were in talks to buy ExxonMobil’s stake in Castle Peak.

An industry source familiar with the situation said the stake would “be worth at least several billion (US) dollars”, adding ExxonMobil had long sought to sell the asset to focus on its core business of oil and gas.

The source asked not to be identified because he was not allowed to make public comments on the talks.

CLP, which is controlled by the wealthy Kadoorie family and supplies electricity to users in Kowloon and the New Territories, said there was no certainty an agreement would be reached. It gave no further details.

CLP already holds 40 per cent of Castle Peak, which owns three coal-fired power stations with generation capacity of 6,908 megawatts – part of which can burn gas as a back-up fuel.

RBS analyst Jenny Cosgrove said ExxonMobil could fetch up to HK$22 billion from its stake in Castle Peak, which enjoys an annual return of 9.99 per cent on its net fixed assets until 2018 under a programme known as Scheme of Control.

Citigroup analyst Pierre Lau said CLP was expected to pay between HK$11 billion to HK$13.7 billion if it and China Southern were to evenly split the 60 per cent stake.

The deal, if it goes through, would also become the first major acquisition by China Southern since its establishment in 2002.

China’s cash-rich state power groups have been scooping up bargains, with leading distributor State Grid Corp establishing a presence in the Philippines, Brazil and Portugal.

A joint purchase by CLP and China Southern would allow further integration of power grids in Hong Kong and Guangdong, analysts say. China Southern services Guangdong, Guangxi, Guizhou, Yunnan and Hainan.

The value of ExxonMobil’s stake carries a price/book ratio of 1.7 times, Cosgrove said in a note. Assuming an enterprise value of about HK$40 billion for Castle Peak, the estimated price tag of the ExxonMobil stake implied “a very reasonable” valuation of HK$0.74 million per MW, she added.

CLP had HK$3.2 billion in cash and HK$65 billion of total debt at end of last year, with debt to total capital at 45 per cent.

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