Huadian Power International announces placement of 286.2m new H shares

Dilution of 3% to existing shareholders expected.

Huadian announced the placement of 286.2m new H shares to at least six but no more than 10 professional or institutional investors to raise net proceeds of HKD1,384m.

According to a research note from Maybank Kim Eng, it estimates that dilution to existing shareholders will be 3.0% and that it think this placement is a mild negative catalyst.

Although the placement is only for not more than 10 investors, the placing price is at a large discount of ~10% to the last trading price.

The company intends to use the HKD1,384m net proceeds for working capital.

Here's more from Maybank Kim Eng:

After the placement, we estimate Huadian’s net gearing will decrease from 308% to 290% at the end of FY14E. We reckon the strength of Huadian’s recent share price is mainly due to lower coal prices.

However, we maintain our HOLD rating as we expect possible tariff cuts of around 5% will happen in 3Q14. We also believe the current share price has already reflected the weak coal prices and speculation of possible asset injections.

In fact, if the coal-tariff linkage mechanism is implemented, the tariff cuts could be more than expectation due to further weakness in coal prices recently.