national business daily: sep scores another deal in overseas expansion with $1.77bn stake purchase of k-electric
sep's detailed plan on the acquisition of pakistan's k-electric (ke) was unveiled lately.
sep will acquire 66.4 percent stake of ke from kes power for usd 1.77 billion in cash, and will provide up to usd 27 million worth of incentives to its counterparty or the parties designated by the latter in view of ke's operation conditions in future, announced the company on october 30.
industry experts believed that the electricity shortage in pakistan indicated a good potential in profitability of ke, which would also contribute to sep's export of excess capacity. the company established the goal to "build another sep overseas by 2020" in 2014, and has already set footprints in japan, turkey, malta, tanzania, etc.
according to the acquisition scheme released by the company, the transaction will be completed in two steps as follows: first, pay usd 1.66 billion for 61.4 percent stake in ke; second, acquire the rest 5 percent stake of ke for the price agreed by both sides. the company will pay for the above stake with its own funds.
meanwhile, it is noted that the transaction will trigger the tag-along rights of international finance corporation (ifc) and asian development bank (adb), two minority shareholders of ke. in line with the share purchase agreement signed between sep and kes, the former should make an offer to ifc and adb for the 0.69 percent stake and 0.01 percent stake owned by them respectively. nevertheless, whether ifc and adb will sell the related stake to sep is up to the former two parties.
furthermore, in accordance with the related securities regulations in pakistan, the ke deal will also trigger the tender offer for the listed company, to the effect that sep will purchase at least 50 percent of the stake owned by the other shareholders of ke additionally, while the eventual amount of additional share purchase will be determined by the result of mandatory tender offer.
sep reported revenue of rmb 11.77 billion from january-september 2016, with a year-on-year decrease of 7.33 percent; net profit attributed to the listed company shareholders amounted to rmb 818 million during the same period, down 10.29 percent from a year earlier, according to the latest q3 report released by the company. ke is the key power supplier to karachi and the surrounding regions and also pakistan's only vertically-integrated power company engaged in generation, transmission and distribution, operating five power plants with a total installed capacity of 2,243 mw.
professor lin boqiang, director of the china center for energy economics research at xiamen university, told national business daily on october 30 that he was optimistic about the prospect for sep's purchase of ke stake in view of the electricity constraints in pakistan.
sep put forward the goal to "build another sep overseas by 2020" in 2014. as of end-2015, the company's total overseas assets arrived at rmb 6.58 billion, rising by 104.09 percent year-on-year; all the overseas projects contributed rmb 130 million to the net profit of the parent company. meanwhile, the company had more than 40 projects in 19 countries.
in recent years, sep has implemented a number of projects overseas, involving thermal power, hydropower, coal and new energy industries. the sanda hyogo pv power project, sep's second pv power project in japan, was synchronized with the grid in february 2016. hunutlu coal-fired power plant, jointly invested by sep and its local partners in turkey, was granted official approval from the turkish government for construction and operation. the 300 mw kiii gas-fired power generation project conducted by sep in tanzania gained approval for its feasibility study report from the tanzanian government, which marked the company was officially granted with the project development right. the ayoun moussa project in egypt has been included in the china-egypt industrial capacity cooperation list. besides, the company's wind power project in montenegro has won official approval, the coal-fired power plant and mine integrated project in mozambique has signed the joint development agreement, and its equity investment in enemalta plc, malta's only state-owned energy company, together with the acquisition of a controlling stake in delimara 3, a major power plant in the country, has also achieved profitability.
according to a research report published by changjiang securities in august 2015, sep has witnessed explosive development of its overseas business. as of end-june, 2015, the company's controlling installed capacity reached 9,039.9 mw, with a year-on-year increase of 5.23 percent, of which clean energy accounted for 26.66 percent. the expansion of installed capacity and structural optimization served as the cornerstone for the company's sustained business growth in the years to come.
china galaxy securities wrote in its research note in march 2016 that sep's projects in japan and malta have achieved profits, and its overseas business in egypt, turkey and tanzania, etc. has been pushed forward orderly, which ensured a stable increase of the company's business performance.
lin boqiang believed that a major reason for sep's overseas allocation lay in its excess capacity shifting overseas. "overseas business allocation is a high-return investment, although it may involve political risk," lin said, "but there is still a long way to go for the company to realize the goal to 'build another sep overseas.'"