Mining Equipment Maker Plows Into Car Parts With German Acquisition

(Beijing) — Zhengzhou Coal Mining Machinery Group Co. Ltd. said it will buy a major unit from leading global car parts maker Robert Bosch GmbH in an aim to diversify as China weans itself from highly polluting coal-generated power.

The Hong Kong- and Shanghai-listed company will pay 545 million euros ($595 million) for the German company’s division that makes starter motors and generators, according to an announcement published late on Tuesday. The division’s net profit fell by half to 2 million euros last year, though its profit before taxes actually rose by 25% to 25 million euros, according to the filing.

The acquisition comes just a half-year after Zhengzhou Coal announced another deal to buy six car parts makers for 2.2 billion yuan ($319 million), kicking off its diversification drive.

The company said it launched the drive due to the long industrial cycle of coal mining, which is particularly vulnerable to government policy shifts. That focus has recently seen Beijing try to curtail traditional coal mining and lessen the country’s dependence on coal-generated power in favor of cleaner electricity sources like solar, wind, hydro and natural gas.

“In order to enhance the profitability of the company, incubate new centers for profit growth, the company has actively pursued business transformation and identified new centers for profit growth, with a view to better arrangement for its development in the automotive components sector,” Zhengzhou Coal said in the statement.

It added that automotive components and coal mining equipment production share a certain level of synergy, which will help it control costs.

The company’s Hong Kong-listed shares were down 2.7% late in Wednesday trade, while its Shanghai-listed shares were suspended. The stock is up nearly 50% over the last 52 weeks.

China’s coal industry has been in a state of consolidation, leading to a nearly 30% reduction in total asset value of 38 mining equipment makers in the first 11 months of last year, according to an industry association. U.S. mining equipment giant Joy Global Inc. has been facing difficulty in China, and Caterpillar Inc.’s coal mining equipment division has mostly withdrawn from the market.

Contact reporter Yang Ge (geyang@caixin.com)