Power Assets Holdings Ltd., controlled by Asia’s richest man Li Ka-shing, reduced the size of an initial public offering of HK Electric Investments and will sell almost a fifth of the electricity supplier to State Grid Corp. of China.
Power Assets will raise as much as HK$27.9 billion ($3.6 billion) selling HK Electric units at HK$5.45 to HK$6.30 apiece, it said in a statement yesterday. The company is offering a 50.1 percent stake in HK Electric, after previously saying it planned to sell as much as 70 percent of Hong Kong second-largest power supplier.
Power Assets is set to complete the world’s biggest trust IPO in almost three years as growth slows in Hong Kong, where Li has been selling assets. The price range implies an estimated 2014 dividend yield of 6.26 percent to 7.24 percent for HK Electric, Power Assets said.
“You can make the argument that there’s very little growth opportunity in Hong Kong,” said Michael Parker, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “The relationship between the regulators and utilities has not been positive for the last few years.”
State Grid, China’s biggest power distributor, agreed to invest as much as HK$10 billion for an 18 percent stake in the unit, according to the statement. Oman Investment Fund also agreed to buy a stake for HK$387.5 million. Power Assets will hold 49.9 percent of the unit after the offering, it said yesterday.
HKT Trust, the owner of Hong Kong’s biggest telecommunications carrier, trades at an estimated 2014 yield of 6 percent, according to data compiled by Bloomberg. Champion REIT, which owns commercial property in the city, trades at a 5.4 percent estimated 2014 yield, the data show.
HK Electric will have a market value of HK$48.2 million to HK$55.7 billion, Power Assets said.
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.
Power Assets shares have fallen 9.3 percent in the past year, in line with the 7.2 percent decline for CLP Holdings Ltd., Hong Kong’s biggest electricity provider. The benchmark Hang Seng Index has slid 2 percent over the period.
Li, 85, has a net worth of $29.6 billion, according to the Bloomberg Billionaires Index. Goldman Sachs Group Inc. and HSBC Holdings Plc are joint sponsors for the HK Electric listing, Power Assets said Dec. 15.
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 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.
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.
Power Assets has partnered with other companies controlled by Li to acquire assets in Europe. In June, a group of Li companies including Power Assets agreed to buy Dutch waste processor AVR Afvalverwerking BV for 943.7 million euros ($1.3 billion).