China set to create world's top utility with latest government merger
Reuters
Published Aug 28, 2017 14:21
China set to create world's top utility with latest government merger
By Josephine Mason and Meng Meng
BEIJING (Reuters) - China's top coal miner Shenhua Group Corp Ltd [SHGRP.UL] will take over China Guodian Group Corp [CNGUO.UL], among the country's top five state power producers, in a deal that will create the world's largest power utility worth $278 billion.
The companies have been in talks about a merger for several months as Beijing aims to shake up its indebted and inefficient state sector, streamline the number of companies and create globally competitive firms in sectors including power generation, shipping and metals.
The Guodian-Shenhua deal was announced on Monday by China's State-owned Assets Supervision and Administration Commission (SASAC) in a one-line statement that gave no other details.
In a filing later on Monday, Shenhua's listed unit China Shenhua Energy Co Ltd (SS:601088) said its parent will absorb Guodian as part of the deal and the new company will be called National Energy Group.
Beijing has merged 15 SOEs since 2015 and currently manages 103 - a number that could eventually fall to about 40, state media reported.
The combined entity would have an installed capacity topping 225 gigawatts (GW), leapfrogging EDF (PA:EDF) and Enel (MI:ENEI) to become the world's biggest power company by capacity, according to Frank Yu, principal consultant for Asia-Pacific Power and Renewables at Wood Mackenzie.
It would also be the largest wind power developer with 33 gigawatts of capacity and the biggest coal producer, he said.
The deal will provide Guodian with a captive coal supply that will help manage its price risks for its main raw material, give it access to Shenhua's infrastructure of rail, harbours and shipping fleet, as well as its deep cash reserves that will help the power producer pay off its large debts, analysts said.
For Shenhua, a merger with a major state power provider such as Guodian - also a leading hydropower and renewables developer - could ease its dependence on polluting coal as smog-plagued China looks to move toward cleaner fuel.
"The union of coal and utilities means both Shenhua and Guodian will balance their risks from commodities, but it will not necessarily boost its (the combined company's) profit level," said Li Rong, power analyst with SIA Energy.
TRILLIONS IN ASSETS
Shenhua had assets worth 1.04 trillion yuan ($278.03 billion) at the end of April and Guodian had assets worth 800 billion yuan, according to company statements.
On Friday, Shenhua's listed unit China Shenhua Energy Co Ltd (SS:601088) delivered its strongest interim results in four years, becoming one of the most profitable public commodity companies in the country.
Get The App
Government-enforced mining capacity cuts as part of the war on smog have helped fuel a spectacular rally in coal prices in China since the summer of 2016, defying forecasts that the industry was in terminal decline and hurting utilities' profits.
In Shenhua Energy's filing, it said it will combine coal-fired power assets with Gourdian's listed unit GD Power (SS:600795), creating a new subsidiary that will include 40 plants across all major regions.
GD will be the controlling shareholder of that entity, with Shenhua contributing 29.27 billion yuan and GD accounting for some 37.37 billion of the total value.
China Guodian is one of five state power producers formed in 2002 after the restructuring of China's state-owned power sector monopoly, along with China Huadian Corp [CNHUA.UL], State Power Investment Corp [CPWRI.UL], China Huaneng Group [HUANP.UL] and China Datang Corp [SASADT.UL].
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.