An Analysis Of Huaneng Power International Inc.'s M&A Strategy

Since its establishment in 1994, Huaneng Power International, Inc.(HPI), China's largest independent power producer, has achieved a very significant expansion by placing equal emphasis on acquiring existing power plants and developing new plants. HPI's total generation capacity on equity basis grows from 2,900MW in 1994 to 15,736MW as of the end of 2003. HPI's leadership position in China's power market is obtained by its continuous M & A strategy: acquiring well-operated and profit-making plants in the most prosperous and fastest-growing areas of mainland China, mainly through relationship transactions with its controlling shareholder, hence expanding its operating scale and market share, then enhancing its earnings and profits.HPI has become the flagship and the main profit source of its parent company –- China Huaneng Group. HPI is also the vehicle of the Group to raise equity capitals in the stock market. As analyzed in this report, HPI's asset acquisitions are mainly made by cash payments. The successful M & A makes contribution to the upgrading of HPI's operating results, paves the way for the company to raise more funds, enhances shareholder value.In the future, facing a more changing and competitive power market, HPI should acquire or develop projects other than coal-fired plants, such as hydropower stations, and select power plants in other quick-developing areas in China, especially outside the Group. M & A may be completed by equity-for-equity ways other than cash-for-equity methods, thus reduces its financial costs.