A compelling one at that.
Huaneng announced issue of 780m H share at HK$7.32/shr, a dilution of 5% of shares outstanding and discount of 10% to last closing price.
According to a research note from Jefferies, while it believes A share placement could be a better option (45% premium), the placing price offers a compelling opportunity to buy a high quality IPP with 7%/9% FCF and dividend yield.
Meanwhile, Jefferies' 2016E earnings are still 25% higher than consensus as it believes consensus has not fully priced in the collapse of thermal coal price.
Here's more from Jefferies:
Buying opportunity. While we believe the company should have used A share instead (which is trading at 45% premium), we believe the placing price offers a compelling opportunity to buy a high quality IPP, which offer 7%/9 FCF and dividend yield. Our 2016 earnings estimates are 25% higher than current consensus as we believe consensus has not fully priced in the collapse of thermal coal price in 1H15.
H-Share placement of HK$5.7bn. Huaneng Power Int'l announced that it will issue 780m of new H share at HK$7.32/shr with net proceeds of HK$5.7bn, implying a dilution of 5% of total shares outstanding and discount of 10% to last closing price of HK$8.09/shr. The placement values the company at just 1x 2016 PB with expected ROE of 20%, there could be negative impact to share price in the near term. The placing share will be allotted to six to ten investors, and none of them will become a substantial shareholder of the company after the placement.
De-lever its balance sheet. The net proceeds will be used to payoff loan and supplementing working capital. We believe the equity placement will help the company to de-lever its balance sheet, easing the pressure due to the Rmb9.3bn asset injection from parent co. last year. In November 2014, Huaneng has issued 365m new H shares and raised net proceed of HK$3bn. The equity placement has helped the company to lower its net gearing from 195% in YE2013 to 168% in YE2014.
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