China Power New Energy Development Co agreed to sell 3.2 billion new shares to China Three Gorges Corp, for proceeds totaling HK$2.1 billion, with an eye on the potential benefits arising from hydropower projects.

According to a statement to the Hong Kong Stock Exchange on Wednesday, Hong Kong-listed China Power New Energy will sell 29.1 percent of its stake to the operator of the nation's biggest dam. The renewable energy producer said it will use the proceeds to fund power generation projects.

The share purchase will create "opportunities for the company's further expansion through leveraging the hydro power capabilities and expertise," China Power New Energy said in the statement, adding that the move will help in identifying new projects for future acquisitions.

China Power New Energy gained 15.15 percent to 38 Hong Kong cents on Monday trading. The benchmark Hang Seng Index slightly retreated by 0.06 percent.

The sale will leave State-owned China Power Investment Corp as China Power New Energy's second-biggest holder with a 25.6 percent stake. China National Offshore Oil Corp, the nation's largest offshore oil producer, will have 8.1 percent.

Barbara Hon, equity research analyst with Everbright Securities, said that "it is in line with China Power New Energy's corporate strategy."

According to Hon, the Hong Kong-listed company is primarily engaged in renewable energy power production and its parent company, State-owned China Power Investment, is more of a traditional power producer.

"The agreement will help speed up asset injections from Three Georges to the Hong Kong-listed company, mainly small-scaled hydropower projects with a capacity less than 300 megawatt," said Hon, adding that it is too early to tell whether the agreement will bring synergy effects and contribute to profitability.

According to China Power New Energy's interim results for the six months ended June 30, total revenue was 922 million yuan, up 14 percent from the same period a year ago. Hydropower generation business raked in 64 billion yuan, representing about 7 percent of total power generation revenue. The company made almost half of its revenue from natural gas and oil power generation.

China Daily - Agencies

(HK Edition 12/13/2011 page2)