Energy giants reportedly in merger talks

The listed units of Shenhua and Guodian halt trading in shares

China's largest coal company and a coal-fired electricity giant are reported to be in merger discussions, as their listed units halted share trading on June 5.

China Shenhua Energy Co said in a filing on June 4 with the Hong Kong Stock Exchange that it was informed by its parent company - China's largest coal miner, Shenhua Group Corp - of "a significant matter containing substantial uncertainty that is subject to the approval of the relevant authorities".

On the same day, Guodian Technology and Environment Group, the listed unit of China Guodian Corp, one of the nation's largest coal-fired power generators, issued a similar statement, saying it was informed of the "proposed planning of a significant event".

It was believed that the two energy giants were in merger discussions. Neither responded to requests for comment.

A merger of the energy giants would see the creation of a bigger and more competitive state-owned enterprise in the global market, says Zhou Dadi, a senior researcher at the China Energy Research Society.

Wu Qi, an analyst at the commercial bank research center of the research institute of Hengfeng Bank, said that the merger of a power generator and a coal miner would be a win-win solution.

Economies participating in the Belt and Road Initiative see massive shortages in power generation and supply, and a merger would help the Chinese company better penetrate foreign markets, Wu says.

China has vowed to further cut its industrial overcapacity to accelerate restructuring of the nation's huge state-owned enterprises sector.

Peng Huagang, deputy secretary general of the state-owned Assets Supervision and Administration Commission, said recently at a news conference that the government plans to focus on the restructuring of the coal, power, heavy equipment manufacturing and steel sectors, and explore overseas asset integration.

China is also considering merging two of its nuclear power giants, as the Shanghai-listed units of China National Nuclear Corp and China Nuclear Engineering Corp Group said earlier in March that a strategic reorganization of the companies was underway.

China's 102 centrally administered SOEs made a combined profit of 825 billion yuan ($121.4 billion; 108 billion euros; ￡94 billion) during the first four months of this year, up by 24.8 percent year-on-year, according to the Ministry of Finance.

Lin Boqiang, head of the China Institute for Energy Policy Studies at Xiamen University, warns that in addition to increased competitiveness in the international market, there might also be excessive concentration that could damage domestic market competition.

It might not have a substantial impact on turning the energy companies' losses into gains, he says.

zhengxin@chinadaily.com.cn

(China Daily Africa Weekly 06/09/2017 page28)