China Huaneng to Pay $1.2 Billion for Stake in U.S. Power Company InterGen

China Huaneng Group, the nation’s largest electricity producer, will pay $1.23 billion for a 50 percent stake in Massachusetts-based power utility InterGen in its biggest overseas acquisition in more than two years.

State-controlled Huaneng will buy GMR Group’s entire share in the utility in a deal expected to close in the first half of 2011, the Indian company, whose assets range from airports to highways, said in a statement yesterday. GMR bought the stake for $1.1 billion in October 2008.

Chinese electricity companies are expanding overseas as state-controlled prices prevent them from passing on fuel costs to consumers. Huaneng is building on its $3.1 billion acquisition of Singapore’s Tuas Power Ltd. in March 2008 with the InterGen purchase, gaining access to 12 plants in the U.K., Mexico, the Netherlands, Australia and the Philippines.

“GMR was talking about $1.5 billion at one point, so the current value is clearly positive for Huaneng,” Michael Parker, senior analyst at Sanford C. Bernstein & Co., said by telephone from Hong Kong.

China Huaneng is also among potential bidders for A$8 billion of power assets being sold by Australia’s New South Wales, according to a report by the Australian Financial Review on Aug. 18. The state said on Nov. 15 it has closed bids for the assets, without identifying potential buyers.

Huaneng Power International Inc., a China Huaneng unit listed in Hong Kong, rose 0.7 percent to close at HK$4.24. The benchmark Hang Seng Index gained 1.3 percent.

Decision to Sell

GMR had bought its share of InterGen from a fund owned by American International Group Inc. The rest of the utility is held by the Ontario Teachers’ Pension Plan.

The stake sale will raise $225 million that can be used to fund GMR’s projects, said G.M. Rao, chairman of the Bangalore- based group.

The decision to sell “is in line with the strategy to focus more on the Indian market where GMR is already a market leader,” Rao said, adding that InterGen’s overseas holding company has $1 billion in debt.

“After paying down the debt, there will be a cash inflow of around $225 million to GMR,” Morgan Stanley analysts Akshay Soni and Pratima Swaminathan said in a note to clients dated Nov. 29. “Importantly, this also cuts out the annual interest burden on the debt, around $50 million by our calculations.”

GMR Infrastructure Ltd., a unit of GMR, rose 5.1 percent to 46.05 rupees in Mumbai trading at 3:06 p.m. local time, beating the 1.6 percent gain in the benchmark Bombay Stock Exchange Sensitive Index.

Bank of America Corp. and White & Case LLP acted as financial advisers and legal counsel to GMR, the company said. Credit Suisse Group AG also advised Huaneng on the transaction, according to Josephine Lee, a Hong Kong-based spokeswoman for the bank.

--Ruth David in Mumbai, Chua Baizhen in Beijing and Cathy Chan. With assistance from James Paton in Sydney. Editors: Ryan Woo, John Viljoen.

To contact the Bloomberg staff on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; Baizhen Chua in Beijing at bchua14@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Clyde Russell at crussell7@bloomberg.net.

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