Shenhua, China Guodian Said to Mull $267 Billion Power Giant

Shenhua Group Corp., China’s biggest coal miner, and China Guodian Corp., 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 jumped 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, reported by Bloomberg last month, that 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 rebalance 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 LLC 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 Corp. and China General Nuclear Power Corp. 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 Corp. and China National Nuclear Corp.

Deepen Consolidation

The State-owned Assets Supervision and Administration Commission didn’t respond to a faxed request for comment Sunday. Sasac’s Chairman Xiao Yaqing said in March that the country will deepen consolidation of state-owned enterprises this year.

Shenhua had 1.014 trillion yuan in assets and total power generating capacity of about 83 gigawatts at the end of April, it said in a report last week. The company produced about 290 million tons of coal last year. Guodian at the end of 2016 had total assets of 803 billion yuan and 143 gigawatts of power-generating capacity, according to a statement from the company posted by state-backed industry group China Electricity Council.

China Shenhua Energy Co. said in a filing to the Hong Kong stock exchange Sunday that it was notified June 2 by its parent company of a significant matter that “contains substantial uncertainty which is subject to the approval of the relevant authorities.” Guodian’s Hong Kong-listed China Longyuan Power Group Corp. and Guodian Technology & Environment Group Corp. issued similar statements Sunday.

China Shenhua Energy’s Hong Kong-listed shares rose as much as 6.8 percent to HK$20.45 before paring gains to close up 2.7 percent at HK$19.66. China Longyuan ended up 2.6 percent, while Guodian Technology closed 17 percent higher. Datang International Power Generation Co., the listed unit of China Datang Corp., fell 5.1 percent. The city’s benchmark Hang Seng Index lost 0.2 percent.

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