Shenhua has clear intentions of acquiring more power companies like its most recent acquisition. (Photo/Xinhua)
China Shenhua Group has announced it has agreed to buy a 100% stake in State Grid Energy Development from the State Grid Corporation of China, a move that is expected to cause a reshuffle in China's power generation industry.
After acquiring the energy company, the total capacity of China Shenhua Group will reach 59.2 million kilowatts. After excluding the 2 million kilowatts of its wind power installations, Shenhua's total thermal power capacity will be 57.2 million kilowatts, more than that of China Power Investment, the smallest of the five largest state-owned power producers in the country.
Industry insiders said the deal would greatly help lower the cost of thermal coal for State Grid Energy Development as it had eight thermal power plants which required 20 million metric tons of coal annually.
As of the end of 2011, the total assets of State Grid Energy Development were 55 billion yuan (US$8.63 billion) and liabilities were 46.81 billion yuan (US$7.34 billion). Its debt ratio was as high as 85.1%, compared with 79.71% and 93.02% in 2009 and 2010, respectively
Previously, a statement published on the website of Shanghai United Assets and Equity Exchange on June 28 showed that China's largest coal enterprise Shenhua had bought a 40% stake in Anhui Maanshan Power Plant.
Shenhua Group had made clear its intention to acquire power companies.
The Guangzhou magazine Time Weekly reported that in addition to acquiring power plants in various areas, Shenhua recently acquired the energy company of State Grid Corp of China for 55 billion yuan (US$8.63 billion). This made Shenhua the country's fifth largest power producer.
An industry expert said that as China's most powerful coal enterprise, Shenhua's procurement of coal impacted China's coal market greatly." Shenhua's acquisition of power plants is aimed at expanding downstream in the industry, increasing profitability and dissipating corporate risks. The focus of its development strategy is apparently the thermal power segment," the expert said.
Anhui Maanshan Power Plant's main businesses are the production and sales of thermal power, wholesaling coal and harbor operations.
According to the statement, the plant suffered losses of 200 million yuan (US$31.37 million) in 2010 and 270 million yuan (US$42.36 million) in 2011.
Industry experts said that with its abundant coal resources, Shenhua's acquisition of loss-making local power plants would not only increase its capacity, but also turn these loss-making plants profitable.
A coal analyst Zhou Yuwei said Shenhua's acquisition of State Grid Energy Development hold symbolic meaning as it marks the spinning-off of SGCC's subsidiary, as requested by the government. This move paved the way for reforms of the power industry and would help the state grid company channel its capital and energy into its main business.