Huadian Fuxin Energy, the clean energy flagship of power generator China Huadian Group, is seeking a fresh injection of cash from a Hong Kong listing to provide funding for its ambitious expansion plans. “Given the poor performance [of clean energy stocks] over the past year, and the general lack of market interest in initial public offerings of shares, it is a curious time for Huadian Fuxin to come to the market,” Sanford Bernstein Senior Analyst Michael Parker said. State-backed rivals China Longyuan, Huaneng Renewables and China Datang Corporation Renewable Power have already tapped the Hong Kong market for funds in the past 30 months. Huadian Fuxin’s net debt-to-shareholders’ equity multiple stood at 3.85 times, close to the four-times ceiling state companies are not supposed to surpass, according to the State-owned Assets Supervision and Administration Commission (SASAC). The company aims to raise its wind power generating capacity by 47% by year-end to 3,200 megawatt (MW) from 2,171.3 MW a year earlier. Besides building 600 MW of coal-fired power plants that would add to its existing capacity of 2,050 MW, it also has a 190 MW in hydro power projects under construction or planned that would add to the 2,223 MW of its existing hydro capacity. In the next two years, it has budgeted a total of CNY20 billion for wind, coal and hydro capacity expansion. It has also set aside CNY800 million for the early construction of a nuclear power plant. According to industry practice, power plants must be at least 20% financed by equity capital, and the rest is typically funded by bank loans. This means Huadian Fuxin needs CNY4 billion of capital to meet the requirement for the next two years. It had CNY1.49 billion in cash on hand at the end of last year.

Sanford Bernstein’s Michael Parker said this year was a good time to consider buying into Chinese wind power producers as plant utilization levels were expected to rebound from next year as more power grids were built to relieve chronic bottlenecks in transmission capacity caused by wind farms being built much faster than grids. Huadian Fuxin saw its wind farm’s utilization drop to 2,072 hours last year from 2,232 hours in 2010 and 2,726 hours in 2009. As the company was forced to halve its initial public offering (IPO) target, it is now also considering issuing corporate bonds. “While the share offering’s fund-raising size is less than originally expected, our calculations tell us we should basically be able to meet our needs for the next two years,” Board Secretary Liu Lei told a press conference. Huadian Fuxin Energy plans to raise up to USD391 million in a Hong Kong listing, down from the USD1 billion it originally sought late last year. Huadian has received support from six cornerstone investors, who will buy about 61% of the 1.5 billion shares on offer. They include state-backed wind turbine suppliers Sinovel Wind Group, which has pledged to buy USD58.8 million of the shares, and China South Locomotive & Rolling Stock, which will buy USD50 million, and U.S. conglomerate General Electric, which will take USD10 million. Customer State Grid Corporation of China; its state-backed rival, Huaneng Renewables; and Shanxi Lu’an Mining have each undertaken to buy USD30 million worth of shares. They are not allowed to sell them within six months of Huadian Fuxin’s listing, which is expected on June 28.