Shenhua Said to Seek CGN Merger to Form $204 Billion Power Giant

Updated on
  • China’s top coal miner said to submit proposal to regulators
  • Tie-up would give Shenhua access to cleaner power generation

Chinese coal producer Shenhua Group Corp. is seeking a merger with state-owned China General Nuclear Power Corp., people with knowledge of the matter said, a deal that would create a utility giant with about $204 billion of assets.

Shenhua Group submitted a proposal to government regulators about a possible merger, the people said, asking not to be identified as the information is private. Chinese authorities are still considering the proposal, and there’s no certainty it will result in a tie-up, according to the people. CGN Power Co., the main listed arm of China General Nuclear, rose as much as 12 percent in Hong Kong trading Thursday, the most in more than a year, before settling 8.6 percent higher at HK$2.39.

Any deal would combine China’s largest coal producer with its biggest generator of atomic power, giving Shenhua Group the ability to generate energy from cleaner sources as the nation seeks to reduce its dependency on coal and cut carbon emissions. The Chinese government has also considered a merger of Shenhua Group and rival miner China National Coal Group Corp., known as ChinaCoal, the people said. 

In separate statements on Thursday, China General Nuclear and Shenhua Group both said they have not worked with each other on a merger and haven’t received information from any government departments about a combination with the other company. Shenhua spokesman Meng Jian told National Business Daily on Thursday that there’s no “official information” on Bloomberg’s report about the company seeking a merger.

Size Matters

“Size matters, especially as China’s power consumption growth has slowed down considerably in the past years,” said Helen Lau, a Hong Kong-based analyst at Argonaut Securities (Asia) Ltd. “Together, they can expand in the domestic market with lower cost and stable supplies to lure big industrial customers.”

President Xi Jinping is seeking to overhaul China’s sprawling $18 trillion state sector by 2020, as he seeks to shore up an economy that grew last year at its slowest pace in a quarter century. China said in September it aims to modernize state enterprises, improve their efficiency and simplify their bloated structures so they can compete with large international companies. The exact structure of any deal hasn’t been decided, according to the people.

Fewer SOEs

The State-owned Assets Supervision and Administration Commission didn’t reply to faxed questions. A Beijing-based spokesman for ChinaCoal said the company hasn’t heard anything about combining with Shenhua Group and declined to comment further. 

SASAC, an arm of China’s cabinet that oversees the biggest government enterprises, has said it aims to cut the number of companies under its purview to within 100, from 105 currently. The regulator said July 18 it’s working on about five mergers of state-owned companies and had several other combinations under consideration.

Shenhua Group, which mines for coal and runs power plants that use the fuel, had 931.4 billion yuan ($139.6 billion) of total assets at the end of 2015, according to its annual report. It controls China Shenhua Energy Co., which has a market value of $43 billion.

Definite Winner

China General Nuclear had 432.7 billion yuan of total assets at the end of last year, its website shows. It is the biggest shareholder in CGN Power, which has a market value of $14 billion in Hong Kong, as well as renewable-power generator CGN New Energy Holdings Co. and uranium producer CGN Mining Co.

“Shenhua is definitely the winner if the merger happens as nuclear power is a higher-quality asset that generates better returns and has a bright future in China’s energy mix,” Shi Yan, a Shanghai-based analyst at UOB-Kay Hian, said by phone. “Certainly a merger will create size advantages, but I don’t see any synergy there between the two as their businesses don’t really complement each other.”

In March, Shenhua Group’s general manager, Ling Wen, said the company was considering entering the nuclear power business, while Chairman Zhang Yuzhuo said it was in talks with nuclear developers including China General Nuclear and China National Nuclear Corp. about strategic cooperation.

— With assistance by Guo Aibing, and Steven Yang

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