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China said to push talks to create 1.66t yuan power giant

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China's state-owned enterprise regulator has asked coal mining giant Shenhua Group Corp and power generator China Datang Corp to discuss a possible merger, according to people with knowledge of the situation.

[HONG KONG] China's state-owned enterprise regulator has asked coal mining giant Shenhua Group Corp and power generator China Datang Corp to discuss a possible merger, according to people with knowledge of the situation.

The talks are at an early stage and there's no guarantee of a deal, said the people, who asked not to be identified as the information isn't public. A merger would combine China's biggest coal producer with one of its largest power generators to create a utility giant with about 1.66 trillion yuan (S$336 billion) of assets.

Datang International Power Generation Co, Datang's Hong Kong-listed unit, rose as much as 7.1 per cent, the biggest intraday gain in six weeks, to HK$2.27 as of 9:34am local time. China Shenhua Energy Co, Shenhua's Hong Kong-listed company, lost 0.4 per cent. The city's benchmark Hang Seng Index was little changed.

The State-owned Assets Supervision and Administration Commission encouraged the discussions as the two businesses complement each other and a merger would be in line with China's supply-side reform policies, the people said.

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Sasac didn't respond to a fax seeking comment. Spokesmen for Shenhua and Datang didn't answer calls outside normal business hours or respond to emails.

"If successful, this may be a good model for China's coal and power industry reforms as a company with strong coal and coal-fired power assets could maintain reasonable profits in almost all circumstances," said Lin Boqiang, an adviser to the country's National Energy Administration and director of Xiamen University's China Center for Energy Economics Research.

SOE Overhaul

A merger would build on President Xi Jinping efforts to cut the nation's industrial overcapacity, accelerate the drive to overhaul its bloated state-owned sector and reduce its reliance on coal. China will speed up mergers and acquisitions of state-owned firms in coal, power, machinery and steel this year, Sasac vice-chairman Zhang Xiwu said in Beijing earlier this month.

Shenhua's assets totaled 931.4 billion yuan in 2015, with Datang's totaling 729.5 billion yuan, according to their websites. Last year, Shenhua submitted a proposal to Sasac about merging with state-owned China General Nuclear Power Corp, Bloomberg reported in July. Both companies said they weren't in merger talks.

Listed unit China Shenhua Energy this month posted its first profit growth in four years and issued a special dividend that sent share prices up by more than 20 per cent. Datang International Power Generation swung to a 2.75 billion yuan loss for 2016 on higher coal costs.

Shenhua Group's power-generation capacity totaled 78.5 gigawatts in 2015, while China Datang had 127.2 gigawatts, according to their websites. A combined company would top power behemoth China Huaneng Group's 160.6 gigawatts. The country had 1.5 terawatts of power capacity in 2015.

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