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* HK Electric offering 5.5-7.26 pct annualised yield
* HK Electric set to be Hong Kong's biggest IPO since 2010
* Another sovereign wealth fund to join as cornerstoneinvestor
By Denny Thomas and Michael Flaherty
HONG KONG, Jan 11 (Reuters) - Government-owned State GridCorp of China is coming in as the biggest cornerstone investorin a Hong Kong initial public offering (IPO) worth up to $5.7billion by Li Ka-shing-backed HK Electric Investments, peoplefamiliar with the matter told Reuters.
Li's Power Assets Holdings Ltd is planning to listits Hong Kong electricity business, HK Electric Investments, asit seeks funds for overseas expansion. The IPO is set to belaunched on Monday, they added.
China's cashed-up state power groups have been expandingoverseas, buying up bargains in the past few years. The dominantpower distributor State Grid, which is the largest state utilityin the world, has established a presence in the Philippines,Brazil and Portugal among other countries.
Last year, state-owned China Southern Power Grid and CLPHoldings Ltd agreed to buy Exxon Mobil Corp's Hong Kong power business for $3.4 billion.
Depending on the final pricing, State Grid will end upowning more than 15 percent, or about $1.2 billion, of HKElectric Investments after the IPO, set to be Hong Kong'sbiggest since AIA Group Ltd's $20.5 billion deal in2010.
HK Electric is slated to list on Jan 29.
Li, Asia's wealthiest person, built his business empire bybuying and selling companies across the globe. But in the lastfew years, Li has been adding more power and infrastructurebusinesses in Europe and other developed markets.
Cornerstone investors, including State Grid, are committingaround 35 percent, or about $2 billion based on the upper end ofthe IPO estimates, one person said. The final size of thefund-raising will depend on the eventual IPO price, which willbe determined through a book-building process.
CORNERSTONE INVESTORS
State Grid will be joined by other cornerstone investors,including a sovereign wealth fund, one of the people said.
Cornerstone investments in IPOs is an Asian phenomenonwhereby certain funds or high net worth individuals commit tobuy a specific number of shares at the IPO price and in returnagree to stay invested in the company for between 6 to 12 monthsafter the listing.
HK Electric, which started operations in 1890, providespower to about 568,000 customers and would have a market valueof between HK$48 billion and HK$63.4 billion. Power Assetsexpects to own 30 to 49.9 percent of the trust, with theremainder sold in the market.
It would offer an annualised distribution yield of 5.5 to7.26 percent, which has attracted investors to the deal. Thatcompares with 7.7 percent for Langham Hospitality and 6.2percent for HKT Trust.
Like most power generators and distributors, Hong KongElectric Company operates as a regulated utility, its tariffsand level of earnings regulated by the Hong Kong government.
Power Assets forecast the trust's consolidated profitattributable to shareholder equity of at least HK$5.18 billionfor the year ending December 2013, falling to at least HK$2.77billion for the year ending December 2014.
Goldman Sachs Group and HSBA Holdings arethe joint sponsors for the IPO.
Sources declined to be identified as the information is notpublic. Power Assets and State Grid were not available forimmediate comment.
