Global Economics

Strong Debut for China's Top Wind-Power Producer


China Longyuan Power Group, the nation's biggest wind-power producer, raises more than $2 billion in Hong Kong listing

By Bloomberg News

(Bloomberg) — China Longyuan Power Group Corp., the nation's biggest wind-power producer, rose on its debut in Hong Kong trading after raising more than $2 billion in an initial public offering to help fund its capacity expansion.

The stock gained 9.4 percent to close at HK$8.93 today, compared with the IPO price of HK$8.16, after climbing as much as 14 percent. The benchmark Hang Seng index fell 0.2 percent.

"The premium today hasn't really reflected the potential of this up-and-coming renewable energy company," Timothy Kwai, an analyst at Quam Securities in Hong Kong, said by telephone. "Longyuan has large wind-power capacities."

China Longyuan raised a net HK$16.7 billion ($2.2 billion) from the sale of 2.14 billion shares in Hong Kong's third- largest IPO this year. About half the proceeds will be used to boost its mainland generating capacity as the nation ramps up use of renewable energy to rely less on more polluting coal.

Beijing-based China Longyuan, a subsidiary of state- controlled electricity producer China Guodian Corp., plans to double its wind-power capacity to 6.5 gigawatts by the end of next year, President Xie Changjun said on Nov. 26. One gigawatt can power about 1 million homes.

"Longyuan has strong connections with provincial governments and province-owned enterprises, so it's got a very good advantage when expanding its wind-power network," Kwai said. "There are hundreds and thousands of wind-farm projects in China, and the state has to give priority to those companies that have greater potential."

UN Certification

China Longyuan advanced in Hong Kong trading even as the executive board for the United Nations' carbon market refused to certify some of the company's mainland wind-power projects for carbon financing.

The board turned down 10 wind-farm projects in China on concerns they failed to meet the criteria for earning carbon credits, Lex de Jonge, chairman of the board, said yesterday. China Longyuan said on Dec. 8 that it "understands" five of its projects were among those rejected.

"The impact on China Longyuan will be minimal because the revenue from those five projects may be less than 5 percent of total revenue," said Peter Yao, an analyst at Bank of China in Hong Kong.

The company's profit will likely more than double this year to 885 million yuan ($130 million) on increased capacity and electricity generation, according to a Nov. 6 Morgan Stanley report. Revenue may rise 14 percent to 7.2 billion yuan, it said. Morgan Stanley and UBS AG managed China Longyuan's IPO.

'Tremendous Demand'

China Longyuan's gains contrasted with China Minsheng Banking Corp.'s decline on its Nov. 26 trading debut after the bank raised HK$30.1 billion in its IPO. Sands China Ltd. also dropped on its first day of trade on Nov. 30 after securing HK$19.4 billion in its initial share sale.

"Longyuan is riding on the renewable energy theme and definitely attracts many long funds or environmentally aware funds," Yao said. "I won't be surprised to see tremendous demand in the stock later on and more positions building up."

The China Longyuan IPO attracted $400 million from China Investment Corp., the nation's sovereign wealth fund, according to three people familiar with the offering. WL Ross & Co. LLC, controlled by U.S. billionaire Wilbur Ross, agreed to buy $100 million of stock.

Renewable energy companies including China WindPower Group Ltd. and China Solar Energy Holdings Ltd. have more than tripled in Hong Kong trading this year amid calls from the Chinese government for renewable-energy investment.

China, the world's biggest polluter, burns coal to produce about 80 percent of its electricity and wants at least 15 percent of its energy to come from renewable sources by 2020. The country's wind-power capacity will increase more than fivefold in the next decade, Zhang Guobao, the head of the National Energy Administration, said on May 26.

To contact the reporter on this story: Baizhen Chua in Beijing at bchua14@bloomberg.net


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