Beijing Jingneng tries to energize IPO investors

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HONG KONG (Dow Jones Investment Banker) – Amid particularly choppy primary equity markets, Beijing Jingneng Clean Energy Co., Ltd. is attempting to raise up to US$630 million in an IPO in Hong Kong; to succeed, the deal may need to be cut back.

The offering is a play on the growth of clean power in energy-hungry China, which has been a fertile hunting ground for ECM bankers over the last couple of years. The company’s government backing may provide some measure of comfort, but Beijing Jingneng’s small cornerstone tranche still leaves a significant amount to raise from investors. So to succeed in the current environment, the offer might need to be reduced, and perhaps also pitched at a slashed valuation, recent market falls notwithstanding.

Beijing Jingneng, which is controlled by a state-owned enterprise and, indirectly, by the Beijing municipal government, operates a diversified clean energy portfolio, including gas-fired power and heat energy, wind power, small to medium hydropower and other projects.

- A gas-fired power plant in Beijing -

It is the largest gas-fired power provider in Beijing, where it owns two cogeneration plants and one heat energy generation facility. As of December 31, 2010, it accounted for 61% of the total gas-fired power installed capacity in the capital. At that date, it was also the eighth largest wind operator in the PRC, with 16 farms in operation.

Growth prospects are good. Electricity generation in the PRC experienced compound growth of 12.3% between 2001 and 2010, with a consumption of 4,192 TWh in 2010, up 15% from 2009.

Beijing Jingneng has more than 2,255 MW of consolidated installed capacity, slightly below that of Huaneng Renewables Corp. Ltd. This has grown at more than 28% per annum over the last three years and is expected to expand further by more than 107% by the end of 2012. A fourth power plant is under construction in Beijing, with nine wind farms projects also under development, as well as four hydropower plant ventures – in addition to a number of identified projects in the pipeline.

Proceeds from the IPO, 91% of which is in the form of a primary offering, have been earmarked for the financing of new gas-fired and wind projects.

It’s a mid-cap. Revenues, which peaked in 2009, were more than US$560 million in 2010, but profits grew almost 960% between 2008 and 2010 to reach more than US$80 million last year. As is common with companies in the sector, Beijing Jingneng is heavily geared (almost 160%). It will also pay a special dividend equivalent to 2010 earnings to historic owners in connection with the IPO.

Bookbuilding and roadshow presentations started on June 16, with pricing currently scheduled for June 30. The deal is led by Barclays Capital (Barclays is a minority shareholder in the company), BOC International, Goldman Sachs and UBS.

Comparables have taken a major hit over the last few weeks. Since the end of May, China Datang Corp. Renewable Power Co. Ltd is down more than 17%, with Xinjiang Goldwind Science & Technology Co. Ltd falling almost 21% over the same period. Huaneng Renewables, which finally floated this month after a false start earlier in 2010 is currently trading just below its IPO price. The company had to scale down its IPO size, as well as pricing in order to get the deal across the line.

Beijing Jingneng has received US$65 million of cornerstone investments: US$15 million from wind-turbine maker Xinjiang Goldwind, as well as US$50 million from private equity firm SAIF Partners. However, that only covers 13% of the institutional tranche at the bottom end of the price range, far less than the 55% secured by Huaneng Renewables from 13 leading names, including sovereign wealth funds CIC and Temasek Holdings.

The total of 2.36 billion shares on offer also represents a significant capital raising, over and above the company’s capital of 5 billion shares. Given current market volatility, a smaller offering, as well as a clear discount to comparables, might perhaps be needed to fire up investor demand.

(Philippe Espinasse worked as an investment banker in the U.S., Europe and Asia for more than 19 years and now writes and works as an independent consultant in Hong Kong. Visit his website at Readers should be aware that Philippe may own securities related to companies he writes about, may act as a consultant to companies he mentions and may know individuals cited in his articles. To comment on this column, please email [email protected]).

[This article was originally published on Dow Jones Investment Banker on 20 June 2011 and is reproduced with permission.]

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