Huaneng Power International Inc. (600011), China’s largest electricity generator, is more than doubling debt sales this year as the government promotes expansion into clean-energy industries that are retrenching globally.
The unit of China Huaneng Group plans to issue 5 billion yuan ($801 million) of one-year notes today, pushing its sales this year to 35 billion yuan from 15 billion yuan in 2011, according to data compiled by Bloomberg. The yield on the group’s October 2013 notes has fallen 70 basis points this year to 4.25 percent. Average yields for utilities’ debt worldwide have dropped 74 basis points to 2.74 percent, according to Bank of America Merrill Lynch indexes.
China, the world’s biggest emitter of carbon dioxide, will raise its non-fossil fuel use to 15 percent by 2020 from around 8 percent, even as Europe and the U.S. scaled back support for renewable energy. Suzlon Energy Ltd. (SUEL), India’s biggest wind- turbine maker, defaulted on a bond and U.S.-based Solyndra LLC, a solar panel maker, went bankrupt. Huaneng Group plans to increase its proportion of low-carbon emissions and green energy to 25 percent of its total generation by 2015, according to its website.
“Raising money through bonds is still cheap compared to bank loans, which currently go with a 6 percent interest rate,” said Shi Yan, a utilities analyst at UOB Kay Hian Investment Consulting (Shanghai) Co. New energy projects “need a lot of capital spending,” she said.
Huaneng Renewables Corp., the group’s wind power unit, sold a total of 2 billion yuan of notes last month, according to a stock exchange filing at the time. China’s new energy industry is expected to benefit from the start of a renewable energy quota system, as well as monetary policy easing, according to a company filing in August.
Sun Zhiyong, Huaneng Group’s Beijing-based spokesman, did not answer two telephone calls to his office seeking comment on the company’s bond sales.
The nation will implement a system dictating the amount of renewable energy that provinces and cities must consume, buy into their grid and produce, the official China News Service reported earlier this year.
Falling borrowing costs are also helping power companies in China, the world’s biggest energy consumer, to expand construction of new plants, after the central bank reduced rates to 6 percent in July following the first cut in more than three years the previous month. Average yields on the country’s top- rated 10-year corporate bonds have fallen 6 basis points this year to 5.12 percent. The yield on the similar-maturity benchmark government bond has risen 17 basis points to 3.59 percent.
“Liquidity is better than 2011 in the interbank market so it’s easier for power companies to sell bonds this year,” said Qin Shengyao, a bond analyst in Shenzhen at China Investment Securities Co., which is owned by a government investment arm. “The lower borrowing costs are also motivating the companies to sell bonds.”
Premier Wen Jiabao pledged to reduce carbon dioxide emissions as much as 45 percent by 2020 from their 2005 level, prompting energy companies including China Huaneng Group to expand their wind, solar and hydro-based production.
“With higher environmental and emission requirements taking effect in the next couple of years, Huaneng would have to rely on low-emission new energy segments to reach its emission reduction goals clearly ordered by the central government,” said Leo Wu, a Shenzhen-based utilities analyst at Guotai Junan Securities Co. The company also wants to raise more funding for expansion in traditional coal-fired power stations as long-term energy needs are expected to grow, Wu said.
China’s yuan rose 0.01 percent to 6.2449 per dollar as of 9:54 a.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency touched 6.2371 on Oct. 29, the strongest level since the government unified the market and official exchange rates at the end of 1993.
Five-year credit-default swaps insuring sovereign notes against non-payment fell 2 basis points to this year’s low at 64 basis points on Nov. 5, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities if an issuer fails to adhere to its debt agreements.
Investors are confident the government, which owns Huaneng, will ensure it has no problems with its debt, according to UOB Kay Hian’s Shi.
“The better mood in the bond market certainly will help Huaneng raise more money,” she said. “It should use this window to raise money not only for expansion but also for its expiring debt.”
Huaneng Group plans to invest 100 billion yuan in new energy such as in solar and water projects in Tibet within the next decade, according to a report from the official Xinhua News Agency on Oct. 4. Besides supplying for local consumption, part of the electricity would be sent to more populous provinces, according to the report.
“Huaneng Group wants to expand its new energy portfolio,” Guotai Junan Securities’s Wu said. “Special subsidies from the government could also make returns on those investments on new energy look attractive in the longer term.”