China: Shenhua and Guodian are in $267 billion merger discussions

Shenhua, China’s biggest coal miner, and China Guodian, one of the nation’s largest coal-fired power generators, are in merger discussions, according to people with knowledge of the matter.

The talks are preliminary and the merger may not go ahead, said the people, who asked not to be identified as the information isn’t public. The Hong Kong-listed units of the state-owned giants, which had shares jump Monday, said Sunday they were notified by their parent companies of “significant” matters, while subsidiaries in Shanghai requested trading halts. Neither parent, which have combined assets of almost 1.82 trillion yuan ($267 billion), responded to requests for comment.

A Shenhua-Guodian tie-up is the latest proposed combination in China’s power industry and differs from an earlier plan which would have created three energy giants through mergers of eight companies. The power industry has been targeted for restructuring as President Xi Jinping tries to cut industrial overcapacity, the number of state-owned enterprises and the country’s reliance on coal, as his government seeks to re-balance the $11 trillion economy toward more consumer spending.

“The central government has determined to reform and shrink the number of major power generators as it doesn’t want to see continued expansion of coal-fired power capacity,” said Laban Yu, head of Asia oil and gas equity research at Jefferies Group in Hong Kong. “Shenhua matches well with almost anybody as their high-quality coal assets could immediately help every coal-fired generator’s bottom line.”

Regulators had considered merging Shenhua with China Datang and China General Nuclear Power. That proposal — to create three power giants out of eight coal-fired and nuclear generators with combined assets of almost 5.9 trillion yuan — pitched Guodian together with China Huadian and China National Nuclear.

Full Content: Financial Times

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