Independent shareholders of China Resources Power (CRP) and sister firm China Resources Gas (CRG) are unlikely to vote in favour of their proposed merger unless the firms can provide more details about proposed post-merger investment into riskier new projects and quantify cost savings, analysts said.
While the firms said their proposed merger into a new entity called CR Energy Group would create "the largest Hong Kong-listed, mainland-focused integrated energy utility", analysts said bigger might not be better, unless cost savings and greater profitability could be quantified.
"The stock market does not necessarily reward an energy and utility firm solely because it is big," said Pierre Lau, head of Asia Pacific utilities research at Citi.
Post-merger, the combined market value of CRP and CRG would be HK$137 billion, exceeding the HK$111 billion of leader Huaneng Power International.
The merger would see every 100 CRG shares exchanged into 97 newly issued CRP shares, after which CRG would be delisted. The offer to CRG shareholders is 12.8 per cent higher than the firm's last traded share price prior to the announcement of the proposed merger. The proposal came as a surprise on May 10, as CRP and CRG operate in different industries - one being mainly a coal-fired power generator and the other a natural gas distributor.
Both are fund managers' darlings, meaning they can fetch valuations higher than most of their peers, as measured by their share price-to-earnings ratios, and both would have no problem raising funds independently in the capital market to support their planned expansions.
But state-owned China Resources - their majority shareholder, with 64 per cent of CRG and 63 per cent of CRP - has bigger plans for the combined entity.
