Three Gorges stock sale unprecedented


The Three Gorges dam is the largest engineering project in the world but short of cash

By Alex Frew McMillan
CNN

HONG KONG, China (CNN) -- Floating the massive Three Gorges dam on domestic and overseas markets would be unprecedented, stock analysts say.

China's state media said on Tuesday the company behind the country's biggest construction project since the Great Wall was looking at selling stock in the controversial project to help cover its cost. (Full story)

It is looking to sell 5 billion yuan ($604.1 million) in stock as early as 2003, with a listing on the A-share domestic market in China.

The project's parent company, China Three Gorges Project Development Corp., said it is also looking at stock listings in New York or London.

The company said Wednesday it will set up China Three Gorge Electric Co. this year, as a subsidiary with an eye on going public.

The dam will be the largest in the world if it is completed on schedule in 2009. The portion of the dam the government is looking to sell is just a fraction of the 180 billion ($21.7 billion) yuan total cost.

A shift to China markets

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The largest Chinese companies used to look exclusively overseas if they needed to raise money from shareholders.

But securities laws are improving in China, with markets in Shanghai and Shenzhen attracting more investors, with the Three Gorges dam the latest possible entrant.

China's domestic markets have already drawn other mega companies such as oil and gas producers PetroChina and Sinopec.

The nature and sheer size of the Three Gorges project make it unique. The dam has been highly touted by Chinese state media, so that could lure some patriotic buying support.

On the flipside, there has also been international outrage at the flooding of the Yangtze River valley that began in 1997 to make way for the project.

Residents are being forcibly relocated, and environmentalists have bemoaned the loss of some beautiful scenery and sights of historic importance.

While there is no doubt about the project's landmark status, the investment prospects are less certain and deemed risky.

Traditional

The Three Gorges project is also going against the tide in China as it is a hydroelectric project, a stark contrast to the traditional coal-fired electricity companies, and reform in the power sector is still up in the air.

"Even in the B share market, most of the electricity companies are coal fired," Jeannie Cheung, China stock strategist with HSBC, told CNN.

"Power sector reform is still uncertain. So the popularity of the stock is unclear. But in the past, they [investors in China] have taken anything with the right price, right?"

Critics of Chinese domestic stocks say they are more like options than traditional stocks, because the government has in the past changed regulations with no warning.

A large power plant might prove popular with big retirement funds. Once built, energy projects are traditionally conservative investments and much like bonds, guaranteed to throw off regular sales and dividends.

With pollution a problem along China's industrial east coast, Beijing has been pushing an official line of cleaner power.

Besides hydroelectric energy, the central government said in its last five-year plan that it will drive many homes and businesses to convert to natural gas.

China has a history of massive engineering projects. Besides the Three Gorges dam, it is also currently planning the West-East Pipeline, a gas pipeline that will span the entire breadth of China from Xinjiang province in the west to Shanghai on the coast.