China’s Silk Road Fund Backs Another IPO of State-Owned Firm

China’s Silk Road Fund Backs Another IPO of State-Owned Firm

Fund is largest cornerstone investor in China Energy Engineering Corp.’s up to US$1.96 billion IPO, the WSJ reported.

HONG KONG—China’s US$40 billion Silk Road Fund, which the country set up in November 2014 to finance its “one belt, one road” development plan, has once again shown support to the listing plans of state-owned companies.

The fund is the largest cornerstone investor in China Energy Engineering Corp.’s initial public offering to raise as much as US$1.96 billion in Hong Kong, according to a person with direct knowledge of the matter.

CEEC, controlled by power conglomerate China Energy Engineering Group Co., is offering 8.8 billion shares at 1.59 Hong Kong dollars to HK$1.73 (20.5 to 22.3 U.S. cents) a share, and has locked up more than half of the shares from 20 cornerstone investors, the person said.

CEEC declined to comment.

Cornerstone investors in Hong Kong commit funds to support an IPO and agree to buy at the float price, but are tied to holding the stock for a certain period, usually six months, after the shares start trading. The participation of such investors can help give other investors confidence to invest in an IPO.

Chinese state-owned companies have increasingly relied on cornerstone investors since China’s market turmoil began in June, an indication that ordinary IPO investors are becoming difficult to attract.

The Silk Road Fund made its maiden IPO investment in October when it chipped in US$100 million to become the largest cornerstone investor in Chinese investment bank China International Capital Corp.’s US$811 million float. CICC’s share offer was oversubscribed and the deal was priced at the top of the range. Its shares gained more than 7% when it started trading on Nov. 9.

China set up the Silk Road Fund to better connect to the rest of Asia, Africa, the Middle East and Europe, where Chinese companies are seeking to push through various development projects.

Bank of Qingdao, a city commercial lender based in eastern China’s Shandong province, has also received the largest cornerstone investment for its up to US$665 million Hong Kong IPO from a vehicle that focuses on investment opportunities in companies serving the Belt and Road Initiatives—Cayman Islands-incorporated LRC. Belt and Road Investment Ltd.

There was no information available regarding the relationship between the Silk Road Fund and LRC.

CEEC is engaged in the design and construction of power plants, with projects across China and in more than 80 countries overseas, according to its filing to the Hong Kong stock exchange. It also has businesses in equipment manufacturing, explosives and cement production and investments in power projects.

The company was responsible for the construction of the Three Gorges Project in Central China’s Sichuan province and a nuclear-power project in Southwestern China’s Guangxi province, according to its website.

CEEC recorded a net profit of 2 billion yuan (US$313 million) in the first five months of the year, with unaudited total assets of 58 billion yuan at the end of September, according to the filing.

The company will price the deal on Dec. 2 and start trading on Dec. 10. CICC and Citic CLSA are sponsors, or banks responsible for the IPO.