Insurance funds "join hands" with electricity, has mixed-ownership reform found new impetus?

Since 2019, the pace of increasing investment and attracting foreign investment in the power sector has suddenly accelerated.

On December 16, 2019, the signing ceremony for the capital increase and strategic investment of the Yellow River Project of State Power Investment Corporation was held at the Beijing Equity Exchange. Attending the meeting were Bai Yingzi, Chief Accountant of the State-owned Assets Supervision and Administration Commission of the State Council, Wang Liming, Vice Governor of Qinghai Province, Zhang Qingsong, Deputy Secretary of the Party Committee and President of the Agricultural Bank of China, Qian Zhimin, Secretary of the Party Leadership Group and Chairman of State Power Investment Corporation, and several representatives of strategic investors.

The Yellow River Project is the largest equity financing project in the domestic energy and power sector, and is also the largest equity financing project by State Power Investment Corporation and even the new five major power generation groups to date in the form of external cash raising.

According to relevant media reports, the 24.2 billion yuan raised by Huanghe Hydropower in this mixed-ownership reform will release 35% of its equity to eight strategic investors, including China Life, Industrial and Commercial Bank of China, Agricultural Bank of China, China Investment Corporation, Zhejiang Energy Group, Yunnan Energy Investment and CITIC Securities. The funds raised will be mainly used to develop large energy bases such as Hainan Prefecture and Haixi Prefecture.

In November 2019, State Grid Corporation of China held a special promotion meeting for the introduction of social capital at the Beijing Equity Exchange. Luo Qianyi, chief accountant and member of the Party Leadership Group of State Grid Corporation of China, said that the Qinghai-Henan ±800 kV UHV DC project has identified potential investors and signed a cooperation agreement.

The participating investor is PICC. According to the strategic cooperation agreement signed between State Grid and PICC, funds from PICC Asset Management Co., Ltd., a subsidiary of the latter, will be introduced to invest in the Qinghai-Henan ±800 kV UHV DC project, with an initial planned participation ratio of 40%.

It is not difficult to see from the above two cases that financial capital and power projects "hit the right note". Some comments said that under the background of increasing downward pressure on the economy, the projects in which insurance funds participate are very different from those in previous years. Now they mostly participate in industrial investment and support national economic development.

Relevant financial data show that Huanghe Hydropower achieved revenues of 7.875 billion yuan, 8.733 billion yuan, and 11.953 billion yuan in 2016-2018, respectively, and revenues of 7.63 billion yuan from January to July 2019. As a clean energy investment platform of State Power Investment Corporation, Huanghe Hydropower's total installed capacity of clean energy such as hydropower, photovoltaics and wind power is about 16.99 million kilowatts. At present, the cumulative power generation has reached 520.2 billion kilowatt-hours, of which clean energy accounts for 93%, and it is one of the core supporting power sources of the Northwest Power Grid. The Qinghai-Henan ±800 kV UHV DC project starts from Hainan Tibetan Autonomous Prefecture, Qinghai Province, and ends in Zhumadian City, Henan Province. It passes through four provinces including Qinghai, Gansu, Shaanxi, and Henan. The line is 1,587 kilometers long with a total investment of about 22.6 billion yuan. It is also a trunk line project to promote the consumption of clean energy and boost domestic demand and economic growth.

Although the power industry is facing multiple pressures such as falling electricity prices, market competition and strict supervision, it still has advantages such as stable cash flow and large-scale investment among many industries, attracting the attention of investors with equally strong financial strength. The cautious prediction of business prospects, the requirement for stable investment and the pressure of energy transformation have made the power industry's demand for external funds more clear.

It is understood that in addition to increasing capital and attracting investment, clean energy companies under central enterprises are also planning to "land" on the A-share market, including Huaneng Renewables Co., Ltd., which has just delisted from the Hong Kong Stock Exchange, China General Nuclear Power New Energy Holdings Co., Ltd., and China Three Gorges New Energy Company.

Compared with the previous bank lending model, multi-channel financing is conducive to the realization of a new round of large-scale investment by power central enterprises while maintaining or reducing the current debt ratio. From this perspective, the mixed ownership reform may have found more internal driving forces compared with the previous assessment tasks.

However, the current financial capital "hand in hand" with power projects is not the mixed reform generally understood, and private capital has not participated in it. Some industry insiders believe that it is more competitive businesses that can attract private capital. At the end of 2018, the electric vehicle business of the two major power grid companies and private enterprises such as Teladian and Wanbang Charging jointly initiated the establishment of Hebei Xiong'an Lianhang Network Technology Co., Ltd. This is an example. However, the operating profit targets and cost control requirements of state-owned enterprises and private enterprises are different. How to exert their respective energies depends on future motivation.

Yang Ruilong, a first-level professor at Renmin University of China, once pointed out in a lecture by Renmin University Chongyang Dialogue Experts that in natural monopoly industries, such as energy, raw materials, and basic industries, state-owned capital should still be in a controlling position. They can be listed overseas to allow them to participate in market competition, but they should not be completely transformed into market entities that simply aim to maximize profits according to market standards.