New-Energy Giant Rises as State-Run Companies Unite

(Beijing) — A new-energy giant with assets worth an estimated $270 billion has been formed in China with the merger of the world’s largest coal producer and a leading power generator as part of a government drive to consolidate state-controlled companies.

The new conglomerate China Energy Investment Corp. Ltd. emerged Monday following a State Council decision to consolidate the coal miner Shenhua Group and power generator China Guodian Corp. Each of the now-merged companies is based in Beijing and controlled by the central government.

Shenhua and Guodian will now function as China Energy subsidiaries, according to a Shenhua filing with the Hong Kong Stock Exchange.

China Energy has become the nation’s fourth-largest energy company in terms of assets, which total more than 1.8 trillion yuan ($270 billion). The only state-run energy companies reporting higher asset levels are PetroChina Co. Ltd., State Grid Corp. of China and China Petroleum & Chemical Corp., according to company financial results.

Separately, as China Energy units, Shenhua and Guodian plan to establish a new joint venture focusing on coal-fired power plants by combining the equity and assets of their relevant energy units. Guodian has been tapped to control the new venture.

Analysts said the consolidation will be especially helpful for Guodian’s bottom line, as the Shenhua link will secure a reliable coal source at a time of rising coal prices. Due to a recent surge in coal prices, Shenhua’s reported Friday its net profit surged 147% in the first half year-on-year to 24.3 billion yuan.

The Chinese government has been working to consolidate companies under its wings and reduce the number of big, state-owned enterprises (SOEs). Since the initiative started in 2015, Beijing has ordered major mergers and acquisitions affecting steel makers, coal miners and power companies.

Some of the largest mergers to date included the China National Nuclear Power Co. Ltd.’s tie-up with China Power International Development to form State Power Investment Corp. and the combination of CNR Group and CSR Group to create the world’s largest rolling stock manufacturer, CRRC Corp. Ltd. Both mergers occurred in 2015.

State-Owned Assets Supervision and Administration Commission (SASAC) Director Xiao Yaqi said his agency, which supervises central government-controlled SOEs, said consolidations would accelerate this year in bid to create corporate giants that can compete globally.

With the formation of China Energy, SASAC now supervises 98 companies. A knowledgeable source told Caixin in July that SASAC was drafting a plan to reduce the number of companies under its supervision to about 80.

Contact reporter Song Shiqing (shiqingsong@caixin.com)