China Huaneng Group (華能集團), the nation’s largest electricity producer, will pay US$1.23 billion for a 50 percent stake in Massachusetts-based power utility InterGen in its biggest overseas acquisition in more than two years.
State-controlled Huaneng will buy GMR Group’s entire share in the utility in a deal expected to close in the first half of next year, the Indian company, whose assets range from airports to highways, said in a statement on Sunday. GMR bought the stake for US$1.1 billion in October 2008.
Chinese electricity companies are expanding overseas as state-controlled prices prevent them from passing on rising fuel costs to consumers. Huaneng is building on its US$3.1 billion acquisition of Singapore’s Tuas Power Ltd in March 2008 with the InterGen purchase, gaining access to 12 plants in the UK, Mexico, the Netherlands, Australia and the Philippines.
“GMR was talking about US$1.5 billion at one point, so the current value is clearly positive for Huaneng,” Michael Parker, a senior analyst at Sanford C Bernstein & Co, said by telephone from Hong Kong.
China Huaneng is also among potential bidders for A$8 billion (US$7.7 billion) of power assets being sold by Australia’s New South Wales, according to a report by the Australian Financial Review on Aug. 18. The state said on Nov. 15 it had closed bids for the assets, without identifying potential buyers.
Huaneng Power International Inc (華能國際電力), a China Huaneng unit listed in Hong Kong, fell 1 percent to HK$4.17 at the midday break. The benchmark Hang Seng Index rose 0.1 percent.
GMR had bought its share of InterGen from a fund owned by American International Group Inc The rest of the utility is held by the Ontario Teachers’ Pension Plan.
The stake sale will raise US$225 million that can be used to fund GMR’s projects, GMR chairman G.M. Rao said.
The decision to sell “is in line with the strategy to focus more on the Indian market where GMR is already a market leader,” Rao said, adding that InterGen’s overseas holding firm has US$1 billion in debt.
“After paying down the debt, there will be a cash inflow of around US$225 million to GMR,” Morgan Stanley analysts Akshay Soni and Pratima Swaminathan said in a note to clients dated yesterday. “Importantly, this also cuts out the annual interest burden on the debt, around US$50 million by our calculations.”
GMR Infrastructure Ltd, a unit of GMR, rose 4 percent to 45.55 rupees in Mumbai trading at 11:19am, beating the 0.8 percent gain in the benchmark Bombay Stock Exchange Sensitive Index.
Bank of America Corp and White & Case LLP acted as financial advisers and legal counsel to GMR, the company said.
Credit Suisse Group AG also advised Huaneng on the transaction, according to Josephine Lee, a Hong Kong-based spokeswoman for the bank.
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