• Strategy
  • CFO Asia

Three Gorges: Dam Expensive

A heavy drain on taxpayers money and local banks, the Three Gorges project in China needs private funding -- and fast.

Yichang, a city built on the banks of a murky section of the great Yangtze River, a team of investment bankers from China International Trust and Investment Corporation (CITIC) is working round the clock to help Yangtze Electric Power obtain an A-share listing on the Shanghai Stock Exchange. Hardly a rare phenomenon in capital-hungry China, but this is no ordinary example of privatizing state assets.

The controlling shareholder of this company in Hubei Province is the China Yangtze River Three Gorges Project Development Corporation, or Three Gorges Company, the state-owned enterprise behind the largest and the most complex hydroelectric-power project in history.

The money raised by Yangtze Electric Power’s IPO will be spent on the last phase of the Three Gorges project, to begin in 2004. The size of the issue is small, however, and no foreign investor has shown interest in buying a stake in the project which is expected to cost a total of $22 billion by the time construction draws to a close in 2009. Most of it will continue to be borne by loans from state-owned banks.

Yangtze Electric Power was created last September as the listing vehicle for the Three Gorges Company. News about the company’s intention to float some of its shares was rife as early as last spring. In March 2002, Li Yongan, vice president of the Three Gorges Company told the Financial Times that the company was planning a domestic listing which would involve private placements offered to foreign investors, as well as further listings in Hong Kong and London.

Li is now general manager of Yangtze Electric Power as well. Today, his team is only willing to confirm plans to offer shares to domestic investors, with CITIC as lead underwriter. Kou Reming, vice president and CFO – who blames ignorance about the project’s potential for the absence of a foreign listing – says the domestic IPO will launch after the first batch of Three Gorges generators begin operation in August.

The office of the board secretary, which functions as the corporate communications department, admits to planning for a September or October IPO though it confirms that no formal application has been made to the China Securities Regulatory Committee, a necessary step for a domestic listing. A CITIC manager in Shanghai, who declines to be named, believes that Yangtze Electric Power’s IPO will encounter no opposition from regulators because it is part of the government’s strategic planning.

Kou hopes that 15-20 percent of the subsidiary will be offered to the market. Currently, the company has 5.53 billion shares, so according to Kou’s calculation, one billion A-shares are likely to be offered.

According to CITIC’s estimation, Yangtze Electric Power is expected to pull in about US$0.5 billion based on current market conditions. Kou says the money will be used to buy 26 sets of electricity generators which the parent company is offloading over the next few years in exchange for capital to fund the final stage of construction.


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