Harbin Electric will raise RMB1.7 billion capital through the issuance of new domestic shares to its controlling shareholder. Harbin Electric announced in early morning of December 29th 2022 that it has entered into a domestic share subscription agreement with its controlling shareholder for the issuance of new domestic shares at a total subscription price of approximately RMB1.7 billion. Final subscription price will be between HK$3.42 and HK$3.60, representing a price premium of 11.0% to 16.5% compared to the closing price of HK$3.09 dated 28th December 2022. Depending on the final subscription price, the total new domestic shares to be issued from this transaction will be between 529.753 million shares and 556.009 million shares, representing approximately 23.7% to 24.6% of the total issued share capital of the Company as enlarged by the issue of the new domestic shares.
Proceeds raised from the transaction will help optimize the capital structure and promote the transformation of Harbin Electric. Net proceeds to be raised from the transaction are expected to be approximately RMB1,697 million. The Company intends to use these net proceeds to replenish its general working capital, improve its asset liability ratio, optimize its capital structure, and reduce its financial expenses as well as financial risks. Under the background of China’s strategy of promoting green and low-carbon transformation and development, the proceeds from the issuance of new domestic shares will provide financial support for the Company’s reform, transformation and sustainable development; and will help the Company to stimulate business development momentum and carry out new strategies, so that the company can create greater value for the overall shareholders. With China rolling out massive investment plans on energy infrastructure investment: pumped storage projects (from 32.5 GW at the end of 2020 to 62 GW by 2025 and to approximately 120 GW by 2030), thermal power plant rehabilitation and upgrades (between 250GW and 300 GW of coal-fired power plants need upgrading during 14-FYP) as well as investment resumption on coal-fired power (no less than 240 GW to be added in next 3 years) in next few years, we expect the operating performance of Harbin Electric will continue to beat the market expectation from 2023 to 2025.We think the recovery of the Company is already on its way.
Reiterate “Buy” investment rating for Harbin Electric. We are bullish on the outlook of Harbin Electric and we believe the transaction will boost the market confidence in the Company. Share price of Harbin Electric jumped by 46.2% from late August to date driven by market confidence in its outlook and expectation of a recovery. We will maintain our investment rating of "Buy" for Harbin Electric and will further raise its TP.