Huaneng Power International Inc.: Raising Capital in Global Markets

Huaneng Power International Inc. (HPI) is an electrical power generation company operating in the People’s Republic of China (PRC). It was spun off from the Huaneng Power International Development Corporation (HPIDC), a joint venture with the Chinese government, for the purpose of developing and operating modern, coal-firing power plants to meet the expected increase in demand. The rapid expansion plans of HPI coupled with the mandate to use modern technology fueled the need for foreign investment. The primary question was which international market presented the best opportunity for success?

The United States has some of the largest and most influential equity exchange markets in the world. This offers several advantages to foreign firms looking to raise substantial capital. The fact that a company is listed on the New York Stock Exchange (NYSE) or the National Association of Dealers Automated Quotations (NASDAQ) brings prestige in and of itself, in addition to increased exposure, investor access and company valuation.

Foreign companies listing on a U.S. exchange have several options, with American Depository Receipts (ADRs) being the most common. Several types of ADR issues are available depending on the level of regulatory reporting required and the availability to certain types of investors. HPI decided to issue ADRs at Level III, which carried the highest regulatory and reporting requirements but also allowed ADRs to be listed on any major U.S. exchange. These increased regulations also make a company more desirable to certain classes of investor, as information is more readily available and internal corporate fraud is less likely.

Essentially, HPI stock, through ADRs, would be available to U.S. retail investors as well as institutional investors. U.S. investors crave new and emerging market opportunities. Knowing this, both the NYSE and NASDAQ markets have heavily promoted themselves to attract investors to Chinese investment opportunities. Additionally,...