CLP Holdings Limited — M&A Activity 2000

Dec 8, 2000

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

中電控股有限公司

CLP Holdings Limited

(Incorporated in Hong Kong with limited liability)

DISCLOSEABLE TRANSACTION

On 7 December 2000, a wholly owned subsidiary of the Company, CLP-PI, entered into a joint venture agreement with Powergen (the “Joint Venture Agreement”) the effect of which is to give CLP-PI an equity interest of 80% in the Asia Pacific electricity generating portfolio of Powergen. CLP-PI and Powergen will form two joint venture holding companies in which Powergen will retain a 20% equity interest. The joint venture companies will own operating projects formerly held by Powergen in Australia and India. CLP-PI also acquires Powergen's development rights in several power projects in India and Thailand.

The consideration for the operating assets acquired is US$594 million (approximately HK$4,633 million) which includes the consideration payable for other equity in the Australian project sold by third parties other than Powergen. The consideration for Powergen's interests in development projects will become payable subject to approval of the projects by the joint venture companies and their financial close.

The Joint Venture, which was negotiated at arm's length, constitutes a discloseable transaction of the Company under the Listing Rules. A circular containing, inter alia, details of the Transaction will be despatched to the Shareholders as soon as possible.

Joint Venture Agreement dated 7 December 2000

Parties:

CLP-PI, a wholly owned subsidiary of the Company; and

Powergen, an independent third party not connected with the Directors, chief executive and substantial shareholders of the Company and any of its subsidiaries or their respective associates (as defined in the Listing Rules).

CLI-PI

CLP-PI is a wholly owned subsidiary of the Company and is incorporated in the British Virgin Islands with limited liability and registered as an oversea company under Part XI of the Companies Ordinance in Hong Kong.

As at 7 December, 2000, CLP-PI owns 20.81% interest in Electricity Generating Public Company Limited in Thailand and 5% stake in YTL Power International Berhad in Malaysia. CLP-PI currently owns 40% shareholding in the Ho-Ping power project (1,320 MW) in Taiwan. The Ho-Ping power project is currently under construction and progressing well.

Powergen

Powergen is incorporated in the United Kingdom with limited liability. Powergen, through its subsidiaries, is involved in electricity projects in Germany, Hungary, Portugal, India, Australia, Indonesia and Thailand. With the exception of its interests in Germany, Powergen is active in the operations and maintenance of all its power plants.

Nature of the Transaction

The Transaction consists of the Joint Venture Agreement between CLP-PI and Powergen whereby CLP-PI acquires an equity interest of 80% in the Asia Pacific electricity generating portfolio previously owned by Powergen. This equity interest will be acquired through the formation by CLP-PI and Powergen of two joint venture holding companies (the “Indian JVC” and “Asian JVC”) in which CLP-PI will hold an 80% equity interest and Powergen will retain a 20% equity interest. The Indian JVC and Asian JVC will own controlling interests in operating power stations formerly held by Powergen in Australia and India.

CLP-PI also acquires through the Indian JVC and Asian JVC Powergen's development rights in several power projects in India and Thailand.

Arrangements have also been made for CLP-PI to acquire an 80% interest in Powergen's 35% stake in PT Jawa Power in Indonesia, also by way of a joint venture company, subject to that project's satisfactory financial restructuring. (For details of the said acquisition, please refer to the section headed “PT Jawa” below)

The structure of the Joint Venture is set out below:--

Under the Joint Venture Agreement, CLP-PI and Powergen will have board representation in the Indian JVC and Asian JVC proportionate to their respective shareholdings. The Indian JVC and Asian JVC will manage and develop the operating power stations and development projects currently included within Powergen's Asia Pacific portfolio.

The Joint Venture arrangements provide for Powergen to withdraw from the Joint Venture, should it so elect, over a period of 4 years. This is embodied in a put option over the shares held by Powergen in the Indian JVC and Asian JVC. The put option is exercisable as to 10% of the shares in the Indian JVC and Asian JVC after 2 years from the date of signing the Joint Venture Agreement, and up to 4 years from the date of signing the Joint Venture Agreement in respect of Powergen's then remaining shareholding.

Assets of the Joint Venture

The assets of the Joint Venture can be categorized as follows:--

a) Operating Power stations

Yallourn Energy

Yallourn Energy owns a 1,450 MW coal-fired merchant plant and captive coal mine at Yallourn, Victoria, Australia. It is the second lowest cost power producer in Victoria and contributes 22% of the state's electricity output.

Powergen currently owns 49.95% of the shares in Yallourn Energy with the balance being held by independent third parties. By way of a separate transaction concurrent with the establishment of the Joint Venture, CLP-PI has on 7 December 2000 agreed to acquire a further 42.051% of the shares in Yallourn Energy from third party shareholders and to inject this into the Joint Venture.

Pursuant to the change of ownership of Yallourn Energy, a refinancing of Yallourn Energy's existing borrowings will be undertaken. The refinancing will involve the provision by CLP-PI through one of the Indian JVC and Asian JVC of new equity for the refinancing of Yallourn Energy, the amount of which is included in the consideration of US$594 million (approximately HK$4,633 million) payable by CLI-PI.

GPEC

GPEC owns a modern combined cycle 655 MW power station located in the state of Gujarat, western India. This station commenced commercial operation in 1998. Powergen will be transferring to the Indian JVC its 88% shareholding in GPEC. The remaining 12% shareholding is currently held by Gujarat Power Corporation, a Gujarati state-owned company.

b) Development Projects

As part of the Transaction, CLP-PI, through the Joint Venture, acquires Powergen's development rights in power projects at Bina, Rosa, Tuticorin, GPEC II (all in India) and BLCP (Map Ta Phut, Thailand) representing total equity of approximately 2,000 MW, subject to any necessary consents from other project shareholders and relevant regulatory authorities.

c) Interest in PT Jawa Power

The Joint Venture may also acquire Powergen's 35% interest in PT Jawa Power within the next five years subject to a number of conditions relating to the re-financing of the projects debt facilities and re-negotiation of the project power purchase agreement.

Valuation and Pricing

The consideration of US$594 million (approximately HK$4,633 million) payable by CLP-PI has been negotiated on an arm's length basis. As such, the value of the interests to be acquired by the Joint Venture has been assessed on a portfolio basis, rather than attributing independent individual valuations to each of the interests to be included in the Joint Venture. However, reflecting the differing categories of the interests to be held in the Joint Venture, the timing and calculation of the consideration payable for those interests have been structured as follows:--

Operating assets

Consideration totalling US$594 million (approximately HK$4,633 million) will become payable for the operating assets immediately following completion of the Transaction in relation to each asset. This includes consideration payable for the acquisition of a further 42.051% of the shares in Yallourn Energy from third party shareholders other than Powergen.

Completion of the acquisition of the operating assets is subject to third party consents from lenders, other shareholders and relevant regulatory authorities. It is expected that these consents will be obtained over the next two to three months with a view to completion occuring during the first quarter of 2001.

Development projects

By way of additional consideration for the transfer to the Joint Venture of Powergen's interest in the development projects, an amount not exceeding a total of US$48 million (approximately HK$374.4 million) will become payable by CLP-PI to Powergen, by stages as and when each of the development projects is approved by the boards of the joint venture companies and reaches its financial close.

PT Jawa

The economic position relating to PT Jawa will be clear only upon conclusion of the current efforts to refinance and renegotiate the project's power purchase agreement with PLN (Indonesia's state-owned electricity company). A cashflow valuation methodology has been agreed and will be applied upon the satisfactory conclusion of these efforts and the transfer of Powergen's interest in PT Jawa to the Joint Venture. The consideration payable by CLP-PI to Powergen in the event that Powergen’s interest in PT Jawa is transferred at a future date to the Joint Venture will be determined at that time according to that valuation methodology and is not included in the consideration payable upon the entering into of the Joint Venture Agreement.

Financial Information

The financial information relating to the two operating power stations to be acquired immediately is as follows:

	Latest Audited Net Income/(Loss) Account Before Tax	Audited Net Asset
GPEC and Powergen India Ltd	US$49.8 million approximately HK$388.4 million for the year ended 31 March 2000	US$254 million approximately HK$1,981.2 million for the year ended 31 March 2000
Yallourn Energy	(US$35.6 million) approximately HK$277.7 million for the year ended 30 June 2000	US$385 million approximately HK$3,003 million for the year ended 30 June 2000

Put Option in respect of Powergen's 20% shareholding

The Joint Venture Agreement includes a mechanism for determining the price payable by CLP-PI for Powergen's 20% shareholdings in the Joint Venture, should Powergen elect to exercise its option to put part or all of those shareholdings to CLP-PI. This mechanism is consistent with the approach used by CLP-PI in its valuation of the 80% interest in the Joint Venture to be taken up at the outset of the Transaction.

Funding

The consideration of US$594 million payable by CLP-PI in respect of the Transaction will be financed from the Company’s internal resources as well as additional borrowings by the Company. The Transaction, including the future payment of any additional consideration of up to US$48 million (approximately HK$374.4 million) in respect of the development projects, will not have any material adverse effect on the CLP Group’s working capital position.

It is anticipated that CLP-PI, Powergen and their partners from time to time in the projects covered by the Joint Venture will, in the normal course of business, contribute further capital pro rata their shareholdings so as to build the businesses concerned.

Reasons for the Transaction

One of the Company's key strategies is to build a portfolio of high quality energy-related assets in mainland China and the Asia Pacific region. CLP-PI is the designated company within the CLP Group to pursue investment opportunities in the Asia Pacific region.

The acquisition, through the Joint Venture, of an 80% interest in Powergen's portfolio of Asian Pacific electricity assets, is a significant step forward in the implementation of that strategy.

The Transaction provides the CLP Group with an excellent opportunity to:

˙ establish a substantial presence in the Asian power business and a meaningful foothold in the Australian power market;

˙ take CLP-PI forward towards its objective of growth and profitability, achieving positive earnings from 2001 onwards; and

˙ demonstrate the CLP Group's ability to compete effectively in the international market;

The acquisition of Powergen's assets will significantly increase the equity investment of CLP-PI from 1,047MW to 2,575MW of generating capacity, thus establishing its position as one of the leading private sector power companies in the region.

General

This announcement is made in the basis that the Transaction constitutes a discloseable transaction of the Company under the Listing Rules. A circular containing, inter alia, details of the Transaction will be despatched to the Shareholders as soon as practicable. Details of the Transaction will also be disclosed as required under the Listing Rules in the Company's next published annual report and accounts.

Definitions

“BLCP”	BLCP Power Limited, a company incorporated under the law of Thailand to develop the two 2x673 MW Map Ta Phut power projects in Thailand.
“CLP-PI”	CLP Power International Limited
“CLP Group”	the Company and its subsidiaries
“Company”	CLP Holdings Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on The Stock Exchange of Hong Kong Limited.
“Directors”	the directors of the Company
“GPEC”	Gujarat Powergen Energy Corporation Limited, a limited liability company incorporated in India
“Joint Venture”	The joint venture between CLP-PI and Powergen pursuant to the Joint Venture Agreement dated 7 December 2000
“JVC”	joint venture company
“Listing Rules”	Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited
“MW”	megawatts
“Powergen”	Powergen UK plc
“PT Jawa Power”	The project company set up to develop a 1,220 MW power station in Indonesia
“Shareholders”	the shareholders of the Company
“Transaction”	the transaction between CLP-PI and Powergen as disclosed in this announcement
“Yallourn Energy”	Yallourn Energy Pty Limited, a limited liability company incorporated in Australia
“HK$”	Hong Kong Dollars
“US$”	U.S. Dollars

Exchange rate used in this announcement is HK$7.80 to US$1.00

By Order of the Board
Peter W. GreenwoodCompany Secretary
Hong Kong, 7 December 2000