Merger of two power giants gets of­fi­cial nod

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Linkup of Shen­hua Group and Guo­dian Corp to cre­ate world’s largest util­ity provider by ca­pac­ity

Guo­dian Corp, a move be­lieved to form the world’s largest util­ity provider by ca­pac­ity.

The merger will likely cre­ate an en­ergy be­he­moth with com­bined as­sets es­ti­mated to be in the range of 1.73 tril­lion yuan ($254 bil­lion; 211.2 bil­lion eu­ros; £196.1 bil­lion) to more than 1.8 tril­lion yuan.

An­a­lysts be­lieve the in­te­gra­tion of the two com­pa­nies’ strengths and re­sources will ben­e­fit both sides.

Ac­cord­ing to Wu Lixin, deputy di­rec­tor of the strate­gic plan­ning re­search depart­ment at the China Coal Re­search In­sti­tute, the merger will en­able Shen­hua to im­prove its coal-dom­i­nated en­ergy mix by ad­vanc­ing into clean en­ergy seg­ments.

China Guo­dian Corp, on the other hand, can also ben­e­fit from its coal part­ner by keep­ing away from is­sues re­lated to sup­plies and prices, he says.

Zhou Dadi, a se­nior re­searcher at the China En­ergy Re­search So­ci­ety, says the merger is part of the gov­ern­ment’s plan to deepen re­form of SOEs, as the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion vowed to re­duce the num­ber of cen­tral SOEs to un­der 100 and make them health­ier and leaner.

Shen­hua saw its first-half profit more than dou­ble from the same pe­riod of 2016, due to the higher coal price, the com­pany said on Aug 28. Its net profit in­creased 142.9 per­cent year-on-year to 26.3 bil­lion yuan, while its rev­enue jumped by 53.1 per­cent to 120.5 bil­lion yuan. Earn­ings per share were 1.322 yuan.

See­ing the sup­ply and de­mand in Chi­nese coal mar­ket sta­bi­lize in the sec­ond half, the com­pany projects the coal price will re­main at around 550 yuan per met­ric ton, with sea­sonal price changes in some re­gions.

“Sta­ble eco­nomic devel­op­ment with good mo­men­tum will be ben­e­fi­cial to the sta­bil­ity and growth of de­mand for coal. Sup­ply and de­mand in the na­tional coal mar­ket will con­tinue to be bal­anced, with de­mand for ther­mal coals re­main­ing sta­ble and grow­ing. The na­tional de­mand for elec­tric­ity will main­tain such growth mo­men­tum and the growth rate is es­ti­mated to be flat or a lit­tle im­proved com­pared with that in 2016,” Ling Wen, pres­i­dent of China Shen­hua En­ergy Co Ltd, said at a news con­fer­ence in Hong Kong on Aug 28.

Hong Kong-listed China Shen­hua ended a down­ward trend and surged 4 per­cent right af­ter SASAC an­nounced the merger. Shen­hua closed at HK$19.6 per share on Aug 28, up by 2.1 per­cent.

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