Yuanxi Zhang
Long/short equity, value, special situations

China Hydroelectric Corporation: A Safe Deal With 15.0% Annualized Return

Recommendation: Long China Hydroelectric Corporation (NYSE:CHC) at $3.42

Target Price: $3.46

Thesis

We believe China Hydroelectric Corporation is likely to close its go-private deal by early July. The buyer group already owns 59% of the company, so the transaction is likely to obtain the requisite shareholder approval. The company attracted 4 other competing offers in the sale process, which implies that the downside may be limited even if the current deal falls apart. However, the company has a substantial working capital deficit that could cause the company to close down. As a result of these factors, we recommend a small long position in the stock.

Businesses overview

China Hydroelectric Corporation operates 25 hydroelectric power projects in China. CHC's...

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