China Resources Power

CR Power, CR Gas hold talks on merger

Analysts surprised by China Resources plan to combine units to form energy major

PUBLISHED : Tuesday, 07 May, 2013, 12:00am
UPDATED : Tuesday, 07 May, 2013, 6:03am

China Resources Power (CRP) and China Resources Gas (CRG), which have a combined market value of HK$170 billion, are in talks on a possible merger to form an energy major under state-owned China Resources (Holdings).

Trading of the two companies' shares was suspended yesterday pending an announcement on the proposed merger, they said in a statement filed with Hong Kong's stock exchange. No further details were provided.

A person close to the deal said the announcement was expected to be made in a few days.

While some analysts were surprised by the planned merger since the two companies are well-run, not short of capital-raising capability and in different businesses, most agree they can benefit from pooling their resources to beef up their bargaining power on natural gas sourcing in the longer term.

"We do not see large business synergies between the two entities - CRP in power generation, coal mining, and CRG in gas distribution," said Daiwa Securities regional head of clean energy and utilities research Dave Dai.

If CRP builds more gas-fired plants, the merger would form a "vertically integrated structure" that could enhance security of gas supply.

Gas-fired power output for CRP was "too small to matter" in the short term, Dai said.

"There aren't any [synergies] as far as we can tell … at least based on [their] existing assets," Sanford C. Bernstein senior analyst Michael Parker said in a research report. "In fact … there may be negative synergies in this merger."

Parker said CRP was predominantly a coal-fired power generator, while CRG was a gas distributor, and the merger would merely shift the high-level strategy co-ordinating activities of the two firms from their parent to the merged listed entity.

But CRP was likely to build more gas-fired plants and would find CRG a "natural partner", he said.

At the end of last year, coal-fired plants accounted for 92.2 per cent of CRP's generation capacity of 23.3 gigawatts, while gas-fired units took up just 0.3 per cent, wind units 6.4 per cent and hydro units 1.1 per cent.