A-share market takes note of China’s nuclear ambition

China National Nuclear Power’s Shanghai initial public offering is set to be a blockbuster. At Rmb173.5 billion ($27.2 billion), it will be bigger than Agricultural Bank of China’s record $19.2 billion IPO, but will also reveal information on China’s strictly controlled nuclear industry.

The announcement of the deal was carried on the website of the Ministry of Environmental Protection — a rather evasive way of revealing information to the public, but not unusual for Chinese officials.

No details on the timing or size of the deal were given but the nuclear-power operator said it is in need of the money to fund the expansion and construction of five nuclear power stations nationwide. The ministry has given the nod to the company’s IPO plan, but it needs further approval from the securities regulator.

The ministry has investigated seven of China Nuclear’s subsidiaries and has found that its power plants are running in compliance with the requirements of national nuclear and environmental safety, and the operation quality is under control, the environment watchdog said in a statement.

The company produces nuclear power through 13 subsidiaries and has an existing capacity of 6.5 million kilowatts. An additional 10.28 million kilowatts of capacity is under construction, according to the statement.

Sceptics often doubt China’s motivation for developing nuclear power, but the country desperately needs to steer itself toward clean-energy use. China has been relying on the most traditional and filthy fuel — coal — to meet two-thirds of its energy needs.

According to the World Nuclear Association, China currently has 14 nuclear power reactors in operation, more than 25 under construction, and more about to start construction soon. China is aiming for a nuclear power capacity of 40 million kilowatts by 2015 and 60 million to 70 million kilowatts by 2020.

Chinese companies with operations that can be hazardous to the environment need initial approval from the environmental ministry before tapping capital markets for funds.

An IPO or any transaction of such size will certainly attract many banks competing to get involved. China Nuclear hasn’t announced any names, but Citic Securities and UBS are rumoured to be in the crowd.

China’s limited investment channels mean that companies often end up raising a lot more than they originally planned. Bros Eastern, a Chinese producer of dyed melange yarn, raised nearly double the Rmb1.06 billion it needed in its recent IPO.

So there is a good chance that China Nuclear will pocket even more than the Rmb173.5 billion it says it needs.

The biggest A-share IPO so far this year was the Rmb5 billion listing of infrastructure builder China Communications Construction, which started trading on March 9, followed by solar heater maker Sunrain Solar Energy, which raised Rmb2.15 billion on May 21.

During the first five months of 2012, 82 companies listed on the Shanghai and Shenzhen stock markets, raising a total of Rmb60 billion, compared to Rmb152 billion raised by 140 IPOs during the same period last year, according to CapitalVue, a financial data and information provider.