* Exxon sells to CLP and China Southern Power Grid (CSG)
* Deal marks state-ownded CSG's first overseas investment
* CLP to use internal cash and bank loan to fund the deal
* CLP bought stake from Exxon through two years ofnegotiation-CEO
By Denny Thomas and Charlie Zhu
HONG KONG, Nov 19 (Reuters) - Exxon Mobil Corp hasagreed to sell its 60 percent stake in a Hong Kong utility and apower storage firm for a combined $3.4 billion, helping the U.S.oil major raise funds to plough back into its core operations.
Many integrated global oil companies have struggled to boostproduction, spending heavily on new projects in recent years. Inthe first nine months of this year, Exxon, the world's biggestoil firm by market value, spent $33 billion.
They are also keen to put cash in the pockets of investorsthrough asset sales, share buybacks or dividends as analystsgrumble about lagging stock prices.
Under the deal, CLP Holdings will assume controlof Castle Peak Co Ltd, one of Hong Kong's two electricityproviders, lifting its stake to 70 percent by buying half ofExxon's holding for HK$12 billion ($1.6 billion). CLP also plansto buy Exxon's 51 percent stake in Hong Kong Pumped StorageDevelopment Co for HK$2 billion.
State-owned China Southern Power Grid (CSG) will buy theother 30 percent held by Exxon, making it its first offshoreinvestment. CSG did not disclose financial terms. But, BettyYuen, a senior executive at CLP, told reporters that CSG alsopaid HK$12 billion for the 30 percent stake.
CLP, which is backed by the wealthy Kadoorie family and hasbeen providing electricity to Hong Kong for over 100 years, saidthe deal will help it better manage and coordinate its Hong Kongpower generation and distribution business.
By partnering up with CSG in the acquisition, CLP would havemore options in terms of importing electricity generated byclean fuels in mainland China to Hong Kong via CSG's grids, CLPCEO Richard Lancaster said.
CLP, like many power producers around the world, is underpressure to cut emission. Lancaster said CLP will use morenatural gas for generation in the next couple of years.Currently, coal accounts for about 45 percent of CLP's powergeneration, while nuclear makes up 35 percent and the rest comesfrom natural gas from central Asia and a field in the SouthChina Sea.
Castle Peak Power Co Ltd owns three power stations in HongKong with a total power generation capacity of 6,908 megawatts,including a 4,108-MW coal-fired plant called Castle Peak and the2,500-MW gas-fired Black Point power station.
The sale of the stake from Exxon came from two years of"bilateral discussion" with the U.S. oil major instead of anauction, Lancaster told reporters.
People familiar with the matter had told Reuters that Exxonran an auction to find a buyer for half its stake earlier thisyear. While the sale process elicited some interest fromJapanese and Southeast Asian bidders, CLP was seen as thenatural buyer given its 40 percent existing shareholding, theyadded.
CLP and Power Assets Holdings Ltd, Hong Kong'sother power supplier, garner an annual return of 9.99 percent onnet fixed assets until 2018 under a government programme.
Power Assets, controlled by tycoon Li Ka-Shing, hasannounced plans to spin off its Hong Kong electricity businessthrough a Hong Kong IPO, which could raise up to $5 billion.
CLP is increasing investment in Hong Kong because of growingpopulation and power demand, Lancaster said.
CLP will use internal resources and a HK$10 billion bridgeloan facility from HSBC Plc to fund theacquisition, which CLP executives say should be completed aroundmid-2014.
"We have plenty of firepower to complete the acquisition,"said chief financial officer Mark Takahashi, adding that CLPalready has HK$16 billion undrawn loan facilities and HK$3billion cash.
CLP will look at "a range of funding sources from loans tobonds to possible hybrid securities and even possibly equities"to replace the bridge loans when they expire, he added.
Castle Peak's profit rose 2.7 percent to HK$3.1 billion foryear ended Dec. 31, 2012, when it had net assets of HK$540million.
CLP said it was advised by Evercore Partners and HSBC whileCSG said it was advised by Morgan Stanley and ChinaInternational Capital Corp. Barclays Plc advised Exxon,a person familiar with the matter said.
- Mergers, Acquisitions & Takeovers
- Hong Kong
- Exxon Mobil Corp
- China Southern Power Grid