Shenhua spends 870m yuan to expand capacity
China Shenhua Energy, the nation's largest coal producer, has agreed to spend 870 million yuan to raise its stakes in two power units, expanding its generation capacity 5.5 per cent.
The firm said it would buy additional 15 per cent stakes in both Tianjin Guohua Panshan Power Generation (Panshan) and Liaoning-based Suizhong Power, raising its stake in each power producer to 65 per cent.
China Shenhua will pay 480 million yuan for the Panshan interest and 390 million yuan for the Suizhong stake after winning an auction.
The deals are part of the recent disposal of 9,200 megawatts (MW) of generation assets by State Grid Corporation of China, the mainland power distribution monopoly in all but five southern provinces.
The sale is a major step towards completing State Grid's restructuring into a pure distribution company to facilitate the introduction of competition in the generation segment.
Panshan runs an 11-year-old 1,000 MW coal-fired plant while Suizhong has a seven-year-old 1,600 MW plant.
The 15 per cent acquisitions will lift China Shenhua's equity-calculated installed generation capacity by 390 MW to 7,383 MW from 6,993 MW at the end of last year - much smaller than any of the five mainland power firms listed in Hong Kong, but mid-sized compared with the country's industry overall.
The company said in March it planned to raise its gross installed generation capacity - the total capacity of plants it held - to 20,000 MW by 2010 from 12,000 MW last year. It did not give a target based on equity-calculated capacity.
Panshan's net profit fell 17.2 per cent year on year to 255.22 million yuan last year, while Suizhong's surged threefold to 239.96 million yuan.
This meant the Panshan deal was struck at 12.5 times last year's earnings, while the Suizhong purchase was valued at 10.8 times.
This compares favourably with the 15.93 to 25.49 times price-earnings ratios of Hong Kong-listed mainland power generators and China Shenhua's own ratio of 25.8 times.
BOC International analyst Lawrence Lau estimated in a research note that the deals would lift China Shenhua's net profit by less than 1 per cent each year until 2009.
China Shenhua's shares rose 1.63 per cent to close at HK$24.90 yesterday. The share price has doubled over the past year.