China Resources Power

CRP shares rise after it books HK$2b of impairments on coal mining assets

Impairments on coal mining assets relate to price falls, rather than controversy over alleged overpayment for mines, power generator says

PUBLISHED : Tuesday, 19 August, 2014, 9:35am
UPDATED : Wednesday, 20 August, 2014, 5:03am

Shares of China Resources Power Holdings, whose board has been accused by minority shareholders of breaching its fiduciary duties by causing the company to enter into problematic mining deals, rose 2.48 per cent to end at HK$22.75 yesterday after it booked HK$2 billion of impairments on its coal mining assets and said a further write-down was unlikely.

The shares traded as high as HK$22.80 and within sight of the 52-week peak at HK$23. It was the loftiest close for the stock since settling at HK$22.80 on August 11.

The power generation unit of state-owned conglomerate China Resources (Holdings) on Monday posted a 13.8 per cent rise in net profit to HK$6.06 billion for the first six months.

An analyst who attended a briefing by the management said the impairments were booked purely to reflect the major fall in coal prices, and were not a result of any rectification of alleged overpayments for the coal mining assets.

According to a Standard Chartered research report, HK$1.9 billion of asset impairment charges was booked for indirectly held subsidiary Shanxi China Resources Liansheng Energy Investment (CR Liansheng) and HK$544 million for China Resources Taiyuan (CR Taiyuan).

CR Liansheng owns 49 per cent of CR Taiyuan, a joint venture formed in mid-2010 for the acquisition of three coal mines and related assets in Shanxi province from businessman Zhang Xinming's Shanxi Jinye Coking Coal for 7.9 billion yuan (HK$9.9 billion).

Minority shareholders last year launched a lawsuit against former and current CRP directors, alleging they had caused the company losses since the assets were bought at inflated prices and the mines lacked proper exploration and mining rights.

The management denied any wrong-doing in the acquisition, and blamed the deal's incompletion on delays by the Shanxi government in granting mining rights. The lawsuit was dropped in January after a High Court judge rejected a request to add allegations to the original complaint.

Shareholder activist Li Jianjun last month renewed calls on CR Power to cancel the acquisition, which he claimed was fraught with irregularities.

The joint venture has paid HK$4.2 billion so far but the deal has not yet been completed due to a delay in obtaining mining rights, court documents showed.

CR Power's spokesman told the South China Morning Post it would consider putting in data about its coal units' book values after impairment in its interim report after consulting with its auditor PricewaterhouseCoopers. The management would not disclose the figures to analysts yesterday.

The HK$1.9 billion impairment on CR Liansheng pertained to assets other than CR Taiyuan, he said, adding the latter was still waiting for outstanding mining rights before the 2010 deal would be completed.

Former CR Power chairmen Song Lin and Wang Shuaiting have been the subject of graft probes on the mainland in recent months. Li had accused Song of being the mastermind behind the alleged overpayment for the Shanxi assets.

"Management also indicated that further impairment for coal mine assets and mining rights should be very limited, as domestic coal prices have largely reached their trough levels," the Standard Chartered report said.

Daiwa Securities regional head of utilities research Dave Dai said in a note on Monday that without the impairment charges, CR Power's core earnings would have risen 30 per cent, better than his forecast.

The first-half profit rise was mostly due to an 11.7 per cent fall in fuel cost per unit of output, thanks to lower coal prices, and a 14.7 per cent rise in installed generation capacity. Total power output grew 8.3 per cent, but coal production fell 16.6 per cent amid weak demand and oversupply.

Operating profit from coal-fired power generation surged 29.4 per cent to HK$8.83 billion, while an operating loss of HK$1.81 billion was booked, compared with a profit of HK$688.1 million in the same period last year.