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Guodian-Shenhua Coal merger: China to create world's largest power company

Shenhua Group Corp Ltd will take over China Guodian Group Corp

Reuters  |  Beijing 

Guodian-Shenhua Coal merger: China to create world's largest power company
A worker fixes the company logo of China Guodian Corp at a building in Beijing. Photo: Reuters

China's top coal miner Group Corp Ltd will take over Group Corp, among the country's top five state producers, in a deal that will create the world's largest 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 generation, shipping and metals.

The Guodian-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 Energy Co Ltd said its parent will absorb 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 and Enel to become the world's biggest company by capacity, according to Frank Yu, principal consultant for Asia-Pacific and Renewables at Wood Mackenzie.

It would also be the largest wind developer with 33 gigawatts of capacity and the biggest coal producer, he said.

The deal will provide 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 producer pay off its large debts, analysts said.

For Shenhua, a merger with a major state provider such as - also a leading hydropower and renewables developer - could ease its dependence on polluting coal as smog-plagued looks to move toward cleaner fuel.

"The union of coal and utilities means both and will balance their risks from commodities, but it will not necessarily boost its (the combined company's) profit level," said Li Rong, analyst with SIA Energy.

TRILLIONS IN ASSETS

had assets worth 1.04 trillion yuan ($157.38 billion) at the end of April and had assets worth 800 billion yuan, according to company statements.

On Friday, Shenhua's listed unit Energy Co Ltd delivered its strongest interim results in four years, becoming one of the most profitable public commodity companies in the country.

Government-enforced mining capacity cuts as part of the war on smog have helped fuel a spectacular rally in coal prices in since the summer of 2016, defying forecasts that the industry was in terminal decline and hurting utilities' profits.

In Energy's filing, it said it will combine coal-fired assets with Gourdian's listed unit GD Power, creating a new subsidiary that will include 40 plants across all major regions.

GD will be the controlling shareholder of that entity, with contributing 29.27 billion yuan and GD accounting for some 37.37 billion of the total value.

is one of five state producers formed in 2002 after the restructuring of China's state-owned sector monopoly, along with Huadian Corp, State Investment Corp, Huaneng Group and Datang Corp.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, August 29 2017. 10:28 IST
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