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China prepares for power sell-off
Francesco Guerrera, FT Syndication Service
10/24/2005
HONG KONG: China has begun preparations for a multi-billion dollar listing of the southern electricity distribution grid -- a move that would help to fund a planned $2,500bn, 30-year investment to provide power to the country's fast-growing economy.
An international share offering of China Southern Power Grid Corporation would mark the next wave of Chinese privatisations, with its larger rival State Grid, which is based in the north, also expected to be listed in the medium term.
With a flurry of banks' share offerings scheduled for the next two years, foreign investors and investment banks have been looking for the next sector in China's drive to sell stakes in its state-owned enterprises.
Bankers said they had been approached by Beijing to help restructuring the finances and operations of the southern grid, which covers five provinces including power-starved Guangdong, ahead of a possible flotation. They warned that no timetable had been set for the listing.
However, they said an IPO of some 25 per cent of the grid could raise billions of dollars if the company was to be valued in line with the value of its assets at about Rmb200bn.
China has forecast it would need to invest $2,500bn in its power sector of which some $925bn would be spent on the grids - over the next 30 years to keep pace with energy demand.
Analysts believe that, in order for the grid to be attractive to international investors, the government will have to overhaul the tariff system, which favours the state-owned generators.
Research commissioned by the Chinese authorities last year found that the two grid companies had insufficient capital, a high level of debt and weak cashflow.
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