Beijing Enterprises Water Group Ltd. (00371): Double Win Plan

Beijing Enterprises Water Group Ltd. has announced the placing of a 5% new share to China Changjiang Power International Co., Ltd., a wholly-owned subsidiary of China Yangtze Power International, which is listed on the A-share market, at a price of HK$4.29 per share. Upon completion of the Placing, China Changdian International will hold a 4.76% stake in Beijing Enterprises Water, and once Changjiang International has increased its shareholding in the market and its shareholding reaches 10% or more, China Yangtze Power International has the right to nominate a candidate. Serving as an executive director of Beijing Enterprises Water.

This placement and business cooperation agreement is beneficial to both parties.

I personally feel that this time through the placement of China Yangtze Power shares as a shareholder, and reached a cooperation agreement, there are two significant advantages:

1. It is a significant business opportunity for Beijing Enterprises Water to participate in the Great River Basin protection.

2. The notice mentions that once China Changdian International absorbs 5.3% of its shares in the market and its shareholding exceeds 10%, China Changdian International can nominate a candidate to become an executive director of Beijing Enterprises Water. In the future, Electric Power International has laid a heavy burden on the market. Why do you want to hold more than 10% of the shares and be able to appoint an executive director? I believe that it is necessary to make Beijing Enterprises Water Water become an associate of China Yangtze Power Co., Ltd., which is listed on the A-share market. Everyone may ask why it is only 10% of the shareholding, which is enough to make Beijing Enterprises Water become an associate of Yangtze Power. My own opinion is:

a. When surpassing 10% equity, Yangtze Power can appoint a candidate to be the executive director of Beijing Enterprises Water, which is sufficient to participate in the daily operation of Beijing Water Control and has significant influence, but has no control;

b. There will be continued important business contacts between Beijing Enterprises Water and Yangtze Power in the future.

Based on the above two points, I personally feel that even if Changjiang Power only increases its holdings to 10% in the future, although it is less than 20% of the equity, the account should be able to list Beijing Enterprises Water as an associate of Yangtze Power, rather than a simple financial investment.

If Beijing Enterprises Water has become an associate of Yangtze Power, what benefits does it have for Yangtze Power? This is a significant incentive for Yangtze Power to increase its holdings of Beijing-controlled water in the market.

Finally, Gloen’s article set a target market value of 100 billion for Beikong Water (equivalent to a stock price of about 10 yuan). I feel too optimistic myself; if the stock price can regain 6 yuan, I am delighted.