CGN Power has won commitments from 18 institutional investors ahead of its Hong Kong IPO, which may net the Chinese nuclear power company $3.6 billion post-shoe.
China’s largest nuclear energy producer set the terms for its IPO on Monday morning. Depending on where the deal prices, it could be Hong Kong’s largest IPO this year, surpassing HK Electric’s $3.1 billion flotation in January.
On offer will be 8.8 billion shares, all of them primary, at a price range between HK$2.43 and HK$2.78 per unit, according to a term sheet. Pre-shoe, the nuclear power company will raise between $2.8 billion and $3.2 billion. An exercised greenshoe option will add an additional 1.3 billion shares to the base offering and bring the total deal size to $3.6 billion.
It’s only the first day of the bookbuild following two weeks of pre-investor education, but bankers say they are already receiving a number of inquiries from institutional investors on the nuclear power company. Nearly half of the base-deal has already been allocated to 18 cornerstone investors, a mix of hedge funds, long-only institutional investors and power companies.
Och-Ziff Capital Management and Singapore's sovereign wealth fund GIC have each pledged $100 million in CGN Power, while China Development Bank has promised $110 million, bankers close to the deal told FinanceAsia.
Also pledging $100 million are China Southern Power Grid, China Yangtze Power, Hong Kong hedge fund Value Partners and E Fund Management.
China Reinsurance Corp and China Life Insurance meanwhile will invest $75 million each and China Cinda Asset Management and China Minmetals Corp will allocate $50 million to the nuclear power company.
Some $1.3 billion has been set aside for the cornerstone tranche, which means a significant chunk of the deal was already allocated before books formerly opened on Monday. “It’s almost going too well,” one banker told FinanceAsia.
The shares on offer represent 20% of the enlarged share capital. There is a six-month lockup in place for all 18 cornerstones and a 12-month lockup for the controlling shareholders. The deal is scheduled to price on December 3 after a roadshow that will take executives to Hong Kong, Singapore, London, New York and Boston.
Bank of America Merrill Lynch, CICC, and ABCI Securities — the investment arm of Agricultural Bank of China — are overseeing the deal. BNP Paribas, CLSA, Goldman Sachs, ICBC and Morgan Stanley are acting as joint global coordinators, while BOCI, HSBC, Credit Suisse and JP Morgan are among the joint bookrunners and lead managers.
Comparables
At HK$2.43 and HK$2.78 per unit, CGN Power is trading at 13.9 to 15.8 times its 2015 p/e on a syndicate consensus basis. This is in the middle of two of its comparables, China Longyuan Power Group and Huangeng Power International.
Longyuan is trading at 19.82 times its 2014 earnings and is down 16% up to November 24, while Huangeng Power is trading at 7.8 times 2014 earnings and is up 23% year-to-date.
CGN Power differs in that it is a pure nuclear power play, the first to seek a flotation globally.
Nuclear
CGN Power is timing its flotation to coincide with the Chinese government’s drive to curb coal usage in favour of cleaner energy.
The company currently generates about 9.4 gigawatts or half of China’s total nuclear energy output, and plans to use proceeds to construct new stations. It will also acquire a 41% stake in the Taishan nuclear power project.
There are currently 22 operational nuclear reactors in China and 26 under construction, according to the World Nuclear Association. In January, nuclear administrations announced intentions to add 8.6 gigawatts of nuclear power capacity by year-end.
Safety concerns remain a paramount issue following a number of high profile nuclear disasters. Yet nuclear power has strong advantages over more traditional power sources, such as stable power supply, zero emissions and cost efficiencies to name a few, all which would be tremendously beneficial for China’s high-end equipment manufacturers.
The mainland suspended approvals for new nuclear power plant construction after the Fukushima disaster in Japan in 2011. However, China has indicted it plans to lift these restrictions before year-end as part of its environmental efforts.
