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April 29, 2017

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Li Ka-shing's utility trust seeks up to US$5.7 billion IPO this January

HONG KONG--Li Ka-shing's Power Assets Holdings Ltd. (0006.HK) expects to list its Hong Kong electricity business next month, providing the group with a cash injection of up to US$5.7 billion for overseas takeovers.

Power Assets will spin off the business into HK Electric Investments, a single-investment trust, with the listing slated for Jan. 29, the company said in a securities filing late on Sunday.

As part of the spin-off, Power Assets expects to receive at least HK$55.7 billion (US$7.2 billion) by disposing Hongkong Electric Company Ltd. into the trust. The deal "will enable the Company to continue to pursue new acquisitions in the global power industry, while maintaining a strong financial profile," Power Assets said in the filing.

Li, Asia's wealthiest person, built an empire by buying and selling companies across the globe. In the last few years, Li has been selling Asian assets and buying power and infrastructure businesses in Europe and other developed markets.

In June, a consortium of companies controlled by Li bought Dutch waste management company AVR-Afvalverwerking B.V. for US$1.25 billion. In July last year, a consortium led by Cheung Kong Infrastructure Holdings Ltd. (CKI) (1038.HK) — controlled by Li's Hutchison Whampoa Ltd. (0013.HK) — agreed to buy British gas company Wales and West Utilities for US$1 billion.

CKI in January bought New Zealand waste management business EnviroWaste for US$403 million, following Hutchison Whampoa's 1.7 billion deal, including debt, for Orange Austria Telecommunications GmbH last year.

Attractive Yield

The initial public offering of HK Electric Investments could raise as much as US$5.7 billion, based on an expected market valuation of between HK$48 billion and HK$63.4 billion. Power Assets expects to own 30 percent to 49.9 percent of the trust, with the remainder sold in the market.

The IPO will be only the third in the city by a single-investment trust, following HKT Trust (6823.HK), spun off from telecoms group PCCW Ltd. (0008.HK), and hotel owner Langham Hospitality Investments Ltd (1270.HK).

The trust could pay an annualized distribution yield of 5.5 percent to 7.26 percent, Power Assets said. That compares with 7.7 percent for Langham Hospitality and 6.2 percent for HKT Trust.

"It can be attractive if the yield is more than 7 percent," said Alex Wong, a director at Ample Finance Group. "Anything less than 7 percent is not attractive for investors if you take into consideration that you are investing in a no-growth business and that the business is facing risk that the permitted profitability will be regulated in future."

Like most power generators and distributors, Hongkong Electric Company operates as a regulated utility, its tariffs and level of earnings regulated by the Hong Kong government.

"We take a bearish view on this segment and the yield has to be attractive before it can lure investors' interest," Wong said.

Power Assets forecast the trust's consolidated profit attributable to shareholder equity of at least HK$5.18 billion for the year ending December 2013, falling to at least HK$2.77 billion for year ending December 2014.

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