Coal Giants Shenhua, China Guodian Likely to Merge, Analysts Say

(Beijing) — A merger between two of China’s largest coal mining and coal-fired power companies has become highly anticipated, as the state-owned firms simultaneously announced a trading halt on Sunday.

A union between Shenhua Group, the world’s largest coal-mining group, and China Guodian Corp., a leading coal power company that is steadily shifting to cleaner energy sources, is highly likely, barring unexpected events, analysts said. The two Shanghai-listed companies both cited “significant matters subject to regulatory approval” before the suspension of trading.

“This is no mere coincidence,” said an energy analyst who declined to be quoted by name. “This is a top-down decision, in step with nationwide SOE (state owned enterprise) reforms, and speculation that the two will merge is not ill-grounded.”

Created in 1995, Shenhua is the world’s largest coal producer: It sold 394 million tons in 2016. With a nationwide drive to cut down on heavy carbon emissions, Shenhua’s business has branched out from coal mining and coal-powered electricity generation over the years to include freighting, shipping and chemical processing.

While it seeks to diversify into cleaner forms of energy and less polluting businesses, Shenhua’s coal sales and coal-power generation still account for 33% and 25% of its revenues.

Analysts believe that joining hands with coal-power giant Guodian – one of the most advanced firms in its sector in transitioning into cleaner energy sources – would make sense for Shenhua, as it seeks to find new growth.

More than one-third of the total electricity generated by Guodain was from renewable forms of energy at the end of 2016, according to the company’s annual statement, a structure that would give Shenhua a leg up to become a “first-rate international provider of clean energy,” which Shenhua says it strives to be.

The state-owned asset managing body of China said there would be at least two more mergers of hulky government-controlled enterprises before the end of the year, reducing the current 102 companies to fewer than 100, Caixin learned from an internal meeting of the SASAC (State-owned Assets Supervision and Administration Commission of the State Council).

The managing body reiterated during a briefing last week that reform and restructuring of coal and electricity firms would be a priority for the year.

If the deal goes through, a tie between Shenhua and Guodian would be the second merger in the state-helmed coal-power industry, following the 2015 consolidation of the State Nuclear Power Technology Corp. and China Power Investment Corp., which created the State Power Investment Corp., one of the nation’s “big five” electricity firms.

Contact reporter April Ma (fangjingma@caixin.com)