Under the background of the state-owned enterprises (SOEs) reform and cutting overcapacities, the mergers and restructuring of the coal industry will speed up. The Economic Information Daily learnt that relevant authorities required speeding up in releasing guidance on the mergers and restructuring of the coal industry. It will conduct the mergers and restructuring of small coal mines in different regions in two years and strive to establish about 10 coal behemoths with approximately 100 million tons by the end of 2020. In addition, it encourages enterprises to strengthen coordination in cross-region cutting overcapacities through equity swap and mutual guarantee to resources.
Local policies will be implemented soon. The measures on the mergers and restructuring of coal enterprises in Henan and Guizhou have been released. The plans on the reform of state capital and SOEs in Shanxi are expected to be introduced by the end of April. All these increasingly stimulated the capital market. However, insiders pointed out that due to the management system, staff and debts, the merger and restructuring of large coal mines, cross-region mergers and restructuring in particular, are difficult. It is easier to conduct the combination of the power generation with coals, coal transportation, coalification and coal engineering.
Based on the government work report in 2017, China will shut down at least 150 million metric tons of coal production facilities. It will make more use of market- and law-based methods and encourage enterprise mergers, restructuring, and bankruptcy liquidations. “Cutting overcapacities shall be based on current conditions and focus on the future. It should consider the coordination of cutting overcapacities with mergers and restructuring, transformation ad upgrading as well as the layout improvement and advance them together to increasingly improve the overall quality and core competitiveness of the industry.” Wang Xiaolin, deputy head of the National Energy Administration, indicated at a symposium on cutting overcapacities and stabilizing suppliers in the coal industry.
One of the issues in cutting overcapacities in the coal industry is the low concentration of the coal industry and safety risks on small coal mines, Xing Lei, director of the research center on listed coal companies of the Central University of Finance and Economics told the Economic Information Daily. It has to eliminate outdated capacities, develop advanced capacities and improve its own capacities.
As a result, small coal mines were firstly affected in this round of mergers and restructuring. Based on relevant requirements, it shall complete the mergers and restructuring of coal mines with an annual capacity of 300,000 (including 300,000) to 600,000 (excluding 600,000) tones in Shanxi, Shaanxi, Inner Mongolia and Ningxia and coal mines with an annual capacity of 150,000 (including 300,000) to 300,000 (excluding 600,000) tones in Hebei, Liaoning, Jilin, Heilongjiang, Jiangsu, Anhui, Shandong, Henan, Gansu, Qinghai and Xinjiang in two years. For those not conducted restructuring after two years, the provincial people’s government should adopt them into the plans on cutting overcapacities. For coal mines with an annual capacity of less than 300,000 tons except those under the special plan on technical upgrading, no technical upgrading on newly-added capacities will be implemented in principle.
Meanwhile, it encourages advantageous enterprises to conduct mergers and restructuring to build large enterprises and groups, mega coal enterprise groups in particular. Based on the target, the number of coal enterprises will be reduced to 3,000 in 2020 and more than 60 percent will be large enterprises with an annual capacity of over 50 million tons. It will strive to have about 10 coal behemoths with an annual capacity of 100 million tons. “Six enterprises had an output of over 100 million tons last year, compared with eight previously.” Zhang Hong, deputy director of China National Coal Association, told the Economic Information Daily.
The State-owned Assets Supervision and Administration Commission (SASAC) of the State Council previously indicated that the number of central enterprises will be reduced to less than 100. It will stably advance the merger and restructuring at the group level and speed up in the consolidation of iron & steel, coal and power businesses to make professional iron & steel and coal enterprises stronger and better and achieve better resources allocation in integrated power and coal enterprises. Other central enterprises with coal businesses will exit in principle.
It is learnt that the total capacities of central coal enterprises is 846 million tons. Besides Shenhua Group, China National Coal Group and five major power corporations, the total capacities of central enterprises with coal as non-principal business is about 100 million tons. Guoyuan Coal Asset Management Co., Ltd., the central enterprise coal assets management platform company jointly contributed by China Reform Holdings, China Chengtong Holdings Group, China National Coal Group and Shenhua Group, was established in July 2016. On Aug. 16, State Development & Investment Corporation (SDIC), the controlling shareholder of China Coal Xinji Energy Co., Ltd. (601918.SH), and China National Coal Group signed an agreement on shares transfer. It transferred 30.31 percent shares of Xinji Energy to China National Coal Group for free. It is considered as the first case in the restructuring of central coal enterprises under the supply-side reform and kicked off a new round of restructuring of central coal enterprises.
Shenhua Group, the leader in the industry, is reported to have conducted various mergers since the beginning of the year. It is mulling even bigger consolidation and restructuring. Its huge dividends and frequent personnel adjustments further increased the expectation. China Coal Energy Company Limited (01898.HK; 601898.SH) is also expected to conduct merger and restructuring as a result of the personnel adjustment.
While the mergers and restructuring of central coal enterprises speed up, local mergers and restructuring also initiated. According to the plan on the reform of state capital and SOEs in Shanxi Province, it will make full use of 18 listed companies controlled by the state to promote the capitalized and securitization of state-owned resources. Shanxi Securities Co., Ltd. (002500.SZ) pointed out in a research report that assets injection and consolidation are highly expected. As a result of the fierce homogeneous competition among the seven major coal groups in Shanxi Province, they will be built into industrial leaders through the platforms of listed companies.
Henan SASAC convened a working conference on the reform and development of SOEs and the regulation of state capital in the province, proposing to restructure the top three coal enterprises, namely Henan Energy and Chemical Industry Group, China Pingmei Shenma Group and Zhengzhou Coal Industry Group, into a state-owned capital investment company. As a matter of fact, Shandong Energy Group and Yankuang Group have established state-owned capital investment companies since last year.
To cut the excessive capacities in the coal industry, Guizhou also adjusted policies to promote the mergers and restructuring of coal enterprises. On the basis of “halving the number”, it also proposed that the capacity after the restructuring shall not exceed the sum of enterprises before the restructuring and the size after the restructuring shall not be lower than 300,000 tons each year. Meanwhile, it also actively conducts subsidies and awards at different levels on enterprises completed mergers and restructuring and closed coal mines.
Insiders indicated that the mergers and restructuring of large coal enterprises, cross-region mergers and restructuring in particular, inevitably involve many problems among different regions, central enterprises and provincial enterprises,
“It will propose cross-region restructuring during the 13th Five-year Plan period. But the current consolidation is conducted in different regions.” Xing believed that it is easier to conduct the combination of the power generation with coals, coal transportation, coalification and coal engineering, which will help extend the industrial chain, achieve integrated development and improve the comprehensive competitiveness of enterprises. It is noteworthy that more market-based means, such as cross shareholding and mutual guarantee to resources, have been adopted in improving the concentration of the industry.
Translated by Star Zhang