Deep Dive into Hong Kong-Active Mainland Companies (7): Mainland Investors Using Hong Kong as an Investment and Financing Platform for Overseas Business
Serving as the investment and financing platform for Shanghai Electric 's global business operation, Shanghai Electric Hong Kong Co. Ltd. (Shanghai Electric HK) now aims to become the overseas headquarters of the whole group. The company hopes to leverage Hong Kong’s leading edge in financial services to secure cost‑effective capital for overseas investment projects, while building a premier investment framework on the Hong Kong platform for the group’s overseas expansion. In this way the group can improve its overseas business management and control risk more effectively in order to respond to the ever‑changing global economic landscape.
Low cost financing
In an interview with HKTDC Research [1], Shanghai Electric HK said the group saw Hong Kong’s strengths as a service platform as early as 2001 and set up a company to manage its overseas operations and act as a bridgehead for foreign investment. In the last 10 years, Shanghai Electric HK has developed into the group’s global investment and financing platform. It has successfully issued US dollar and Euro bonds in Hong Kong for the group’s overseas projects and signed as the principal on contracts for major overseas mergers and acquisitions (M&A), such as a photovoltaic solar power plant in Dubai and a coal‑fired power plant in Pakistan. In short, Hong Kong is now the base for Shanghai Electric ’s overseas M&A and investment projects.
Hong Kong can provide mainland enterprises with diversified financing channels to access low‑cost funds for their overseas projects. In view of this, Shanghai Electric HK is developing into an “upgraded” global investment and financing platform with its "1+x" structure of “Hong Kong company + financial company, captive insurance company (risk management centre), investment company and trading company”. It aims to become the group’s offshore headquarters for global business with responsibility for overseeing investment and financing activities worldwide and establishing an overseas business development model that complements other subsidiaries focusing on project management.
Shanghai Electric HK, incorporated and listed in Hong Kong, is a wholly owned subsidiary of Shanghai Electric. Its operations cover overseas project management, trade, equity investment, project investment, asset management and insurance.
Strengthening response
In the past few years, many of Shanghai Electric HK ’s overseas projects have suffered delays due to the changing Covid‑19 situation and pandemic control measures worldwide, slowing the pace of its global business development. The complex international situation and regional conflicts, including the energy crisis and inflation caused by the war between Russia and Ukraine, have also affected its overseas business plan. Going forward, the company will have to deal with factors affecting economic development worldwide, especially the current global market downturn and the substantial rise in financing costs due to repeated hikes in the US dollar interest rate. Businesses will need to adapt through Hong Kong’s financial services platform in order to control their overall capital costs. They can also take advantage of Hong Kong’s free flow of information to collect global market intelligence, increase their risk assessment capabilities and better react to the changing investment environment.
China's “dual carbon” (carbon peaking and carbon neutrality) strategic development goals have a far‑reaching impact on Shanghai Electric HK’s investment in overseas energy projects. The group’s energy projects in developing countries and regions used to be focused around boilers, generators, steam turbines, thermal power and coal‑fired plants, but nowadays investors around the world are increasingly concerned about environmental, social and governance (ESG) principles and sustainable development. After the “dual carbon” goals were announced, new investment projects in the conventional energy sectors came to a halt. Against this backdrop, Shanghai Electric HK has shifted its overseas investment focus from conventional energy projects to wind power, photovoltaic, hydrogen and other new energy projects in developed countries in America and Europe. These new projects are often constrained by factors such as local natural environment and resources, making it difficult to carry out large‑scale energy production in the same location and achieve economies of scale. More time, manpower and capital are needed for this change. Therefore, Shanghai Electric HK is seeking to raise funds in more cost‑effective ways via Hong Kong and to use the city’s professional services to enhance due diligence to ensure its investment projects can progress smoothly.
[1] HKTDC Research and the China Business Advisor seconded from the Shanghai Municipal Commission of Commerce interviewed Shanghai Electric HK in the first quarter of 2023.
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