SEP to Rebuild Itself Overseas

As one of the most important listed companies of SPIC and a major electric power enterprise in Shanghai, SEP has been gradually expanding its industrial layout overseas.


"In order to adapt to the new normal of economic development, it is the only road for SEP to invest overseas," SEP Chairman Wang Yundan told the reporter. The company has been making full use of its own advantages and striving to realize the goal of "building another SEP overseas by 2020" so as to implement SPIC's innovative and international development strategy.


In recent years, China has been encouraging qualified enterprises to go global and actively participate in various forms of international industry cooperation. Along with the Belt and Road Initiative put forward and the rapid growth of infrastructure demand by developing countries, especially, golden opportunities emerged for the M&A and development of overseas energy projects.


Under such circumstance, SEP seized the market opportunities, and kept close watch of good-quality M&A projects in the international market positively.


The company has conducted the preliminary work of cooperation project in Malta, wind power project in Australia, offshore wind power project in Germany, acquisition of Pakistan's K-Electric Limited (KE) and Northland Power in Canada successively since 2013. In 2014, the company completed the integration of the M&A project in Malta and achieved profitability, which marked the first project implemented by SEP in Europe and has become a platform to tap into the European market and neighboring region. "This May, the case of SEP's energy investment in Malta was selected into the Annual Report of Overseas Sustainable Development of Chinese Enterprises in 2017 jointly compiled by United Nations Development Programme, SASAC Research Center and Chinese Academy of International Trade and Economic Cooperation of Ministry of Commerce, and was released officially at the Belt and Road Forum," Wang told the reporter.


"In October 2016, SEP and the Dubai-based Abraaj Group signed the agreement on the purchase of 66.4 percent stake of the Pakistan-based KE. At present, our company has completed all the conditions precedent for closing the deal, and we are urging the seller to accelerate the execution of conditions precedent from the Pakistan's side," said Wang.


"The due diligence, business negotiation and investment decision-making for overseas M&A projects often have a tight schedule with intense competition." Regarding the challenges confronted while "going global", Wang told the reporter frankly that the company shall not only go through internal decision-making procedures for overseas acquisition project, but also report to SPIC for approval and fulfill related procedures as a listed company. Externally, the company shall report to NDRC, Ministry of Commerce, SAFE and other related government departments for approval or registration. As far as he is concerned, overseas M&A is like a race against the clock.


In order to simplify cross-border M&A procedures, shorten the time consumed and enhance investment facilitation, relevant departments such as NDRC, Ministry of Commerce and SAFE have amended related regulations from time to time over the past years.


For instance, SAFE has delegated the registration for outward foreign direct investment to commercial banks, and conducted effective guidance on pushing forward M&A projects for commercial banks, which has brought great convenience for the enterprises to handle overseas investment business, reflected the policy direction of the national functional department to support "going-global" enterprises, and provided strong support for the enterprise's financing at home and abroad as well as foreign exchange fund concentration and utilization.


Regarding the requirements of the regulators on the truth and compliance of overseas investment and M&A, Wang said: "The major concern of government functional departments on overseas investment lies in whether the project is real and legitimate, in line with the nation's strategic orientation and development guideline, and could promote the national economy." He expressed that there exists fairly high risk for the enterprise to go global, to some extent, and not only the regulators have certain requirements, also the company has considerations for itself in an all-round manner. According to his introduction, SEP would consider the availability and convenience of multiple financing paths formed by the orderly collocation of multiple factors in the process of designing M&A financing plans. For example, the analysis of debt capital financing involves the following options: first, take SEP itself as the financing subject and purchase foreign exchange with RMB loans to invest abroad; second, take the wholly-owned subsidiary of SEP located at Shanghai FTZ as the financing subject and invest abroad using foreign currency loans directly; third, take SEP's wholly-owned subsidiary established abroad as the subject to obtain foreign currency financing while SEP provides necessary credit enhancement; fourth, acquire financing from the international bond market through the company's overseas financing platform.


On the premise of confirming that the above options are feasible, the company will make further adjustment to the plan, taking into consideration a series of factors such as comprehensive financing cost, foreign exchange risk response and related cost, and third-party credit enhancement.


The objective of building another SEP overseas has not only brought profits to the enterprise, but also created plenty of benefits for the countries where the projects are located. "In general, every project invested by our company has achieved more-than-expected investment returns," said Wang. Take the acquisition of project in Malta for example, SEP, managed to salvage Enemalta from the verge of bankruptcy in 2014 to realizing stable profits for two consecutive years after promoting the reform of Enemalta, and thus helped the Maltese government fulfill the campaign promise of reducing the power tariff for residential and commercial users by 25 percent, improved the reliability of the grid, lowered non-technical line loss, decreased the country's annual number of power outage hours, provided more reliable and efficient service for local residents and also upgraded the country's credit rating while improving comprehensive investment environment of Malta.


In terms of the next-step development strategy, Wang expressed that SEP will follow its overseas planning, focus on implementing the country's Belt and Road Initiative and coordinating with SPIC's strategy of leading nuclear power to go global, and expect that the total capacity of projects planned to start construction along the Belt and Road will exceed 70 percent of the company's total planned capacity overseas by 2020, with a mix of conventional power, renewable energy and nuclear power formed in key areas such as Turkey. In addition, SEP will comply with local situation of market, resource, economy, etc., conduct low-carbon clean projects mainly in developed countries while carrying out high-efficient clean thermal power projects mainly in developing countries, lay emphasis on progressive and echelon-based development, and accomplish three batch of projects under development, put into operation and in reserve respectively.

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