Olympus invests in Chinese hydropower company

Private equity firm Olympus Capital Holdings Asia announced yesterday it has invested $47.5 million in China-focused hydropower company Zhaoheng Hydropower.

The Zhaoheng Group was founded in 1994 by Xu Guo Sheng who had previously held senior positions with Chinese state-owned enterprises. The capital from Olympus is part of a larger equity-raising by Zhaoheng totalling $57.5 million. The balance $10 million has been contributed by the parent company, Zhaoheng International, which was also founded in 1994. Zhaoheng International is a Shenzhen-based company focusing on hydropower electricity generation, the development and trading of specialty steel and mine/mineral products, and digital TV network technologies.

Olympus did not clarify the exact level of equity ownership the investment represents, but in response to an enquiry from FinanceAsia, said it is "a significant minority stake" that comes with the right to nominate one director to the board.

Zhaoheng Hydropower owns and operates power generating assets with a total installed capacity of around 200 megawatts. It acquired its first hydropower asset, Hunan Sanjiang Hydropower Station with an installed capacity of 62.5MW, from a state-owned company in 2003. In April 2008 Zhaoheng completed the construction of the Hunan Zhaoheng Hydropower Station, adding 50MW of capacity to its portfolio. In June 2008 it added another 20.35MW of capacity through acquisitions and in 2009 it has acquired further capacity.

In the year ending December 2008, Zhaoheng had revenues of $13.5 million, on which it earned a gross profit of $10 million, up from revenues of $9.3 million and a gross profit of $7.4 million for the previous calendar year.

Zhaoheng sells electricity primarily to the State Grid Corporation of China and to China South Power Grid Company, based on electricity tariffs published by China's Provincial Commodity Pricing Bureau. In a filing together with its 2008 results, Zhaoheng explained that the increase in its gross profit was attributable to the increase in the electricity on-grid tariff for two of its plants, as well as an increase in installed capacity between December 2007 and December 2008.

Zhaoheng has a target to own 1,000MW of hydropower capacity by 2014, and intends to achieve this through both organic growth and acquisitions. The capital raised from this latest fundraising will help Zhaoheng to increase its development activities, specifically in the Hunan, Hebei, Yunnan and Guizhou provinces of China, where water resources are conducive to setting up hydropower plants.

Zhaoheng was advised by Macquarie Capital. Olympus did not work with an adviser.

Olympus Capital Holdings Asia is an Asia-focused private equity fund which was established in 1997 and has headquarters in New York and Hong Kong. It has committed $1.3 billion to 30 companies across the region. Renewable energy and environmental services, including energy efficiency and pollution control, and prevention, are key investment areas for Olympus. It raised its first environment-focused fund in 2008. In addition to its Hong Kong headquarters, Olympus has Asian offices in Tokyo, Seoul, Shanghai and Delhi.