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Cheung Kong Infrastructure and Hong Kong Electric
"Going Global"


December, 1999 -- Hong Kong

A venture between Cheung Kong Infrastructure (CKI) and Hong Kong Electric (HKE) has successfully bid for the distribution and retail service of Electricity Trust of South Australia (ETSA), ETSA Utilities, the distribution arm and ETSA Power, the retail operations.

This is the first privatisation opportunity in South Australia's power industry offered by the South Australian Government in order to reduce its debt burden. CKI and HKE each holds 50% shareholding in ETSA Power and the right to manage and operate ETSA Utilities for 200 years.

Total consideration of the acquisition is AUS$3.4 billion (approx. HK$16.8 billion). An additional AUS$94 million superannuation, which would otherwise be the government's responsibility, has been included in the government's valuation. The superannuation is to be a part of the venture's future operating cost and has been factored into the AUS$3.4 billion.

H L Kam, group managing director of CKI, said that both seller and buyer are happy with this win-win situation. The seller, the Australian government considers that through this acquisition it has received AUS$3.5 billion, whilst both buyers, CKI and HKE, are happy with their AUS$3.4 billion actual payout. With multiple of EBITDA (Earnings before interest, tax, depreciation and amortisation) being less than 10, CKI and HKE are very happy with their acquisition.

CKI and HKE have very stringent investment criteria and they are both happy with the projected return of the project. K.S. Tso, group managing director of HKE Holdings Ltd., said that ETSA Utilities is a fully operational distribution company with a satisfactory operating system and substantial revenue.

The income of ETSA Utilities is based on a formula, which as agreed with the Australian Government, includes rate of return on investment, inflation adjustment and the passing on of operating costs. This is similar to the Scheme of Control in Hong Kong, implying a very low risk.

In addition, ETSA being a power distribution and retail business is a low risk industry. Since both CKI and HKE are in a strong financial position, funding will be straightforward. Funding for the investment will initially be provided by internal resources and bank borrowing. In order to hedge against foreign exchange exposures and to improve profitability, Australian dollar facilities will be adopted.

The agreement was signed with the South Australian Government in December 1999. Completion will take place by late January 2000. It is understood that should CKI set up office in South Australia, the headquarters is to be in Adelaide. Also if CKI and HKE were to sell the retail arm within two years, the profit generated from the sale would go to the Australian government.

This is CKI's biggest single investment and its second investment outside Asia. This is also HKE's first significant investment outside Asia.


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