China to create a US$265 billion industrial giant in Shenhua-Guodian merger
China’s government is poised to create a 1.8 trillion yuan (US$265 billion) industrial juggernaut by merging the country’s largest coal miner Shenhua Group with power producing giant China Guodian Corp, a move to bolster corporate performance, reduce over-capacity and improve management, according to two sources familiar with the plan.
The Hong Kong-traded units of both companies said their state-owned parents are in the middle of handling “important matters,” according to public statements to the Hong Kong Stock Exchange, indicating that the deal is in the making, toeing the line of the Chinese government’s move to further consolidate state assets.
China’s government wants to orchestrate the merger to help the combined business better able to navigate the volatilities in the coal and energy markets, said a senior executive of a state-owned company close to the State-owned Assets Supervision & Administration Commission (SASAC).
The asset management agency’s deputy secretary general peng Huagang said last weekend that the state would push ahead with overhauls involving major coal mining and power-generating assets.
China’s coal production and power generation industries exist as a zero-sum game. Electricity tariffs are set by China’s government, which puts the pressure on power producers to eke out profits amid surging coal prices, while a weak coal market would benefit power plants, but hurt miners.
Shenhua had 1.04 trillion yuan in total assets as of the end of April, including 83 gigawatts of power generating capacity. Guodian owned assets of 803 billion yuan at the end of 2016, with coal-mining businesses.
