Utilities Sector

We view ENN Energy as “Low Risk” on the LARA scale. This reflects the company’s large scale and diversified business profile across Mainland China as well as its robust financial position, with low leverage. These are balanced against ENN Energy’s exposure to commodity price risks and potential changes in government policies. In addition, the company has ongoing related-party transactions.

Our fundamental Credit Bias on ENN Energy is “Stable”, supported by the defensive nature of the industry and the company’s good cash-flow generation. ENN Energy has maintained c. 1.0x net leverage over the past five years.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. While natural gas is a fossil fuel, it has a lower carbon footprint compared to coal, and has been regarded as a “transition fuel” for countries currently dependent on coal (e.g. China and Indonesia). This will likely support strong gas demand over the next decade, particularly in developing countries.

We have a “Hold” recommendation on the XINAOG notes, with the 2.625 ’30s at 83.9/5.6%/5.7 years.

• TAQA has admitted considering a full takeover of Naturgy Energy Group SA (NTGY SM) and discussions with CriteriaCaixa regarding a possible cooperation pact, with CriteriaCaixa remaining a shareholder.
• GIP and CVC have exceeded the typical investment maturity period and may be willing to dispose of their stakes in Naturgy if presented with a good offer.
• The possibility of corporate actions could bolster the stock from these levels. I assign a >50% probability to a full/partial takeover bid at around €25/26 per share actually materializing.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Green Energy

• Genex Power Ltd (GNX AU) has entered a transaction implementation deed with Electric Power Development C (9513 JP) for a scheme (A$0.275) and an off-market takeover offer (A$0.270). 
• Skip could vote against the scheme due to the low 10% premium to its 2022 offer and Genex’s operational capacity rising by 2.7x by the end of 2024.
• The likely scenario is that J-POWER succeeds with its takeover offer. At the last close, the gross spread of the scheme and takeover offer was 3.8% and 1.9%, respectively.   

• On the 4 March, Genex Power (GNX AU) announced an A$0.275/share NBIO from Electric Power (9513 JP) (J-Power), by way of a Scheme, in tandem with an off-market A$0.27/share Offer.
• Due diligence was afforded. Exclusivity was extended twice, before a firm offer was inked at the same terms on the 12th April.  The Scheme meeting is expected mid-July; implementation late-July.
• And Scott Farquhar’s Skip Enterprises, which holds 19.9% in Genex, and who had previously pitched a A$0.25/share NBIO in 2022? No word. And no irrevocable. 

• Another week, another rumoured (from Bloomberg) takeover. This time it’s for clean energy play CGN New Energy Holdings (1811 HK).
• Back in 2020, CGN was subject to a potential privatisation from its SOE-parent – see CGN New Energy: The Latest SOE Clean Energy Play – but it failed to materialise.
• A couple of years back, a “valuation system with Chinese characteristics” had the media discussing whether this implied a premium for SOEs and companies aligned with national goals.

• Bloomberg reports that CGN, the parent and largest shareholder, is reconsidering taking CGN New Energy Holdings (1811 HK) private. 
• CGN New Energy shares have underperformed the median peer’s shares since the announcement of CGN’s previous aborted privatisation attempt (2 March 2020) and on the last twelve-month basis.
• The probability of an offer is high as CGN, an SOE has access to financing, and CGN New Energy’s valuation is low. We estimate a potential offer range of HK$2.80-4.30.

• China Power International (2380 HK)‘s earnings should accelerate in FY24, and rebound in hydropower is a key driver. Hydropower generation surged 84.3% YoY in 2M24.
• The 9.3GW of capacity acquired in Oct will provide first full-year contribution in FY24. Better economics for coal-fired plants will add to profit momentum.
• The 6pp increase in dividend payout signals management’s positive view in the outlook, and the Chairman is explicitly confident in good FY24 profit growth. 

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents, adjusted every year in August.
• We look at the rankings of the potential ADDs/DELs every month for the next rebal, based on most recent trading data. 
• Every month we provide trade suggestions. The last three months have seen market-neutral returns of +3.0%, +6.5%, +3.2% respectively for the one-month periods. A new trade is suggested below.

• TLNE announced the sale of three power plants in Texas for a higher figure than we were expecting. TLNE is selling 1.7GW of power in Texas for $785 million
• The Texas power plants decrease TLNE’s footprint to thirteen sites and a total of 10.7 GW owned capacity.
• After the Texas assets are sold TLNE would have thirteen power plants mostly in Pennsylvania with several across other states. Three of which are minority ownerships.

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
• SOUTHBOUND a net buyer every day since the end of Chinese New Year. Still. NORTHBOUND a huge net seller this week, but net buyers in size (RMB +86bn) over 8wks.
• For the first time in a while, AH premia among liquid stocks fell convincingly. Narrow AH premia pairs saw Hs outperform more than wide AH premia Hs (vs As).

• With acceptances from 99.6%, settlement of the offer for Opdenergy Holdings (OPDE SM)  will happen on 26 March and squeeze-out on 15 April.
• A done deal since outset, at a fair price. The agreement of Anti with the top shareholders left minorities with virtually no capacity to ask for a sweetening. 
• Readacross: Ecoener, Grenergy, Audax, Solaria could all be the object of takeover bids (either from private equity or minority buyouts), with Grenergy preferred. See comparables table in the insight.

ACWA Power achieved record results for FY23 (year end 31 December 2023). Net profit attributed to equity shareholders stood at SAR1,662m, up 8% y-o-y, while operating income of SAR2,984m grew 14% y-o-y. ACWA added 10.7GW of power generation capacity to its portfolio throughout 2023, with 66% exclusively renewable energy. The company achieved a record 12 financial closes in FY23, with a total funding raise of approximately SAR60bn. It continues to progress its growth ambition of tripling its assets under management by 2030, sufficiently supported by long-term financing and funding facilities.