Two energy giants extend suspension of shares

China's largest coal miner, Shenhua Group, and energy producer, China Guodian Corp, which are mulling a merger, have extended suspension of trading in their shares for the fifth time.

The latest suspension was until Aug 4. But, since the merger discussions are still on, the two State-owned enterprises made a joint statement on Aug 4 that they have requested the Shanghai Stock Exchange that extend the suspension by one more month until Sept 4.

The merger discussions have already sorted out key issues like power production and post-merger operations.

Other issues like reorganization of assets and transaction modes are under discussion, the companies said in the statement.

The planned merger will likely create an energy giant with combined assets estimated to be in the range of 1.73 trillion yuan ($254 billion; 216.5 billion euros; ￡195.6 billion) to more than 1.8 trillion yuan.

According to online news outlet Jiemian.com, which quoted Guan Weizhu, Guodian's safety production director, last week, the merger plan has been reported to the State Council, China's Cabinet.

The merged entity, which will be temporarily named National Energy Investment Corp, will likely have a debt ratio of more than 60 percent, Guan was quoted as saying at the 11th China New Energy International Forum last week.

Analysts believe the planned energy merger could well herald a new round of mergers among SOEs across industries.

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

According to the National Development and Reform Commission, substantial reforms will ensue in such industries as electricity, oil, natural gas, railways, civil aviation, telecommunications and defense.

Integration of each other's strengths and resources will benefit the two companies, says Wu Lixin, deputy director of the strategic planning research department at the China Coal Research Institute.

Shenhua can improve its coal-dominated energy mix by advancing into clean energy segments such as renewable energy and nuclear energy, while Guodian can benefit from a powerful ally in the coal sector, to fend off risks to supplies and prices, he says.

On June 2, when Shenhua was last traded on the Shanghai Stock Exchange, its shares closed at 22.29 yuan, up by 2.62 percent. On the same day, shares in Guodian closed at 3.60 yuan, up by 3.15 percent.

Listed subsidiaries of the two energy giants also halted trading in shares on June 5, after being informed by their respective parent companies about "a significant matter containing substantial uncertainty that is subject to the approval of the relevant authorities".

As part of the government plan to deepen reform of SOEs to make them leaner and healthier, the State-owned Assets Supervision and Administration Commission has planned to reduce the number of central SOEs to fewer than 100.

The State Council has already approved the merger of China National Machinery Industry Corp and textile giant China Hi-Tech Group Corp in June, reducing the number of central SOEs to 101.

(China Daily European Weekly 08/11/2017 page28)