Henan province to consolidate two major coal-energy groups

With support from the government of Central China's Henan province, China Pingmei Shenma Holding Group Co., Ltd., a major state-owned coal miner headquartered in Henan, is set to take control of another provincial state-owned mining giant, Henan Energy Group Co., Ltd., the two groups have announced. The deal is presented as evidence of the provincial government's efforts to streamline Henen's coal sector and improve resource allocation though the massive losses Henan Energy's listed subsidiary is suffering suggest the government might have other motives.

According to statements published by the two groups' subsidiaries late Monday, the Henan State-owned Assets Supervision and Administration Commission (SASAC) – the actual controller of both groups – has decided to inject its 100% stake in Henan Energy into Pingmei Shenma "as a capital contribution at an appraised fair value". Following the transfer, Henan Energy will become a wholly owned subsidiary of Pingmei Shenma.

The statements stressed that the consolidation should not influence the two groups' and their subsidiaries' production and operations. After the transfer, Henan SASAC – which currently holds a controlling 50.15% stake in Pingmei Shenma – will retain control over the Pingdingshan city-based energy and coal-chemicals giant, Mysteel Global learnt from public information.

Some market observers suggest the move reflects the Henan government's strategy to support the development of leading miners. They note the impact of stubborn domestic coal oversupply and consistent price declines during the first half of the year, which had led to sharp declines in coal miners' profits, the Beijing-based China Times reported.

The half-year report of Pingdingshan Tianan Coal. Mining Co., Ltd., the major coal mining arm of China Pingmei Shenma listed on the Shanghai Stock Exchange, showed that its net profit attributable to shareholders had slumped by 81.5% on year to Yuan 258 million ($36.2 million) during January-June.

The company mainly produces primary coking coal, 1/3 coking coal, and fat coal for steelmaking, as well as some thermal coal types to generate power, and boasts coal reserves of around 3 billion tonnes, Mysteel Global learned from the firm's half-year report.

Meanwhile, the major coal mining subsidiary of Henan Energy, the Shanghai Stock Exchange-listed Henan Dayou Energy Co., Ltd., registered a dramatic net loss of Yuan 852 million in the first half of this year, some Yuan 362 million larger than its loss over the same period last year, according to the firm's half-year report.

Henan Energy in total holds coal reserves of 28.4 billion tonnes and operates 52 mines with a combined capacity of 88.65 million tonnes/year, Mysteel Global learned from the group's website.

"Such strategic restructuring can help the two groups eliminate excess capacity, increase industry integration, and enhance competitiveness," China Times quoted Zhou Lisha, a researcher on China's state-owned enterprises (SOEs), as saying.

Beijing has been actively encouraging restructuring among SOEs in recent years to nurture their competitiveness and optimize resource allocation in strategic sectors. In August, China Shenhua Energy Co. Ltd., the country's largest listed coal producer, also announced the acquisition of 13 coal-related assets from its state-owned parent, China Energy Investment Corporation, to enhance its coal resource reserves and fully integrated operational capability, as Mysteel Global reported.

Written by Adrian Zhou, zhouwenhaoa@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com