China's Datang to Invest in $2.9 Billion Nuclear Project
Date: 27-Jan-06
Country: CHINA
Author: Wendy Lim and Alison Leung
State-owned Datang would become the first Chinese listed power firm to invest in nuclear energy, in a deal analysts said could trigger similar moves by larger rivals Huaneng Power International Inc. and Huadian Power International Corp. Ltd.
But analysts warned that the costly project could put debt-laden Datang under a heavier financial strain and raise its risk profile.
Datang said in a statement that it would stump up 49 percent of the capital needed to build and operate the Ningde Nuclear Power Plant Project, which would consist of two 1,000-megawatt (MW) generating units in the country's prosperous southeastern province of Fujian.
Partner Guangdong Nuclear Power Investment Co. Ltd. would put up the remaining 51 percent.
China, the world's second-largest electricity consumer, now has nine working reactors generating about 2.3 percent of its electricity but aims to boost that proportion to 4 percent within 15 years.
"Nuclear energy development is a national policy. It's inevitable the government is relying on listed companies to finance the sizable investment," UBS analyst Alice Hui said.
While many developed countries are struggling with the issue of ageing nuclear plants and nuclear waste, China is keen to ramp up nuclear energy use to reduce its dependence on burning coal, which is causing heavy air pollution in many of its cities.
It plans to invest some 400 billion yuan to build 30 new nuclear reactors by 2020.
Westinghouse Electric Co. and France's Areva are among the multinationals said to be vying for reactor contracts in China. Westinghouse is being sold by British Nuclear Fuels Plc to Toshiba Corp.
Datang investor relations manager Grant Zhang told Reuters that the new venture, which is still awaiting government approval, has yet to pick a supplier.
Datang's cash outlay for the project, expected at about 2.3 billion yuan ($285.3 million) from 2006 to 2012, would increase its financial burden this year and next given the firm's gearing ratio of about 189 percent at end-2005, Hui estimated.
Zhang said the Datang's operating cash flow would be able to meet the investment of about 300-400 million yuan annually on the project. The firm will seek project financing to fund 80 percent of the deal and use cash for the rest, he added.
One analyst from an US investment bank said the new investment would increase Datang's risk profile as it may underestimate the construction costs and has no experience in operating operate nuclear plants.
But on the positive side, the third-generation nuclear technology would have a shorter construction period of about four years and its costs are compatible with coal, the analyst said.
COSTLY EFFORT
Of the total investment of 23.44 billion yuan, about 20 percent would be registered capital, Datang said, adding that the project awaits government approval.
Beijing-based Datang, which operates mostly coal-fired power plants but has also invested in hydropower in recent years, said the investment would help the firm grab market share along China's affluent eastern seaboard.
Datang, which generates about 90 percent of its power from coal, has grappled with surging coal costs in past years, prompting the firm to broaden its electricity sources.
Shares in Datang closed Thursday 0.83 percent lower at HK$6.00, outperforming the market's 0.28 percent decline. The stock has gained about 9 percent in the three months through Wednesday's close.
(US$1=HK$7.8=8.06 yuan)
