Mergers & Acquisitions

China’s CGN Power in talks to buy parent’s Guangxi plant

PUBLISHED : Tuesday, 15 March, 2016, 4:30pm
UPDATED : Tuesday, 15 March, 2016, 4:30pm

CGN Power, the listed unit of China’s largest nuclear power projects developer China General Nuclear Power, is in talks to acquire its parent’s project in Guangxi Zhuang autonomous region.

It is also in discussions with the local government on ways to increase low utilisation of its plants in Liaoning province that has been hit by weak power demand, rising supply and competition from power plants that also generate heat in the winter.

“We are in talks with our parent on acquiring its Fangchenggang plant in Guangxi,” president Gao Ligang told reporters and analysts on Tuesday.

The first 1,080 mega-watt (MW) unit of the Fangchenggang nuclear plant and the third 1,086 MW Yangjiang plant in Guangdong entered commercial operation at the start of the year. The second Fangchenggang unit is slated to do so in the second half.

READ MORE: CGN Power raises HK$23.8b in second-biggest IPO of the year

At the end of last year, CGN managed installed nuclear plants with total capacity of 14,918 MW, up 28.3 per cent from the previous year. Plants totalling another 12,290 MW were under construction.

CCB International’s analysts estimate that its net profit could be boosted next year by 10 per cent if the first two units in Fangchenggang were acquired at the start of next year. These may be sold to CGN for 20.6 billion yuan if the parent were to make a return of 25 per cent on the construction cost, they said in a report.

The Shenzhen-based state-backed firm on Monday posted a 22.6 per cent rise in net profit to 6.3 billion yuan for last year, excluding foreign exchange gains and losses.

Revenue rose 11.9 per cent to 23.26 billion yuan on the back of a 10.3 per cent rise in output by plants in which it has majority stakes, and faster growth in joint venture plants.

The second and third units of its Hongyuanhe plant in Liaoning posted utilisation of only 39.3 to 50.3 per cent as they were forced to operate at low levels and were temporarily shut down in winter when the local grid operator gave output dispatch priority to plants that also generate heat.

A fourth 1,119 MW unit is scheduled to start up in this year’s first half.

“Admittedly, the utilisation of our Hongyuanhe plant is low. We are thinking of various ways to improve this, such as negotiating with the government for higher planned offtake volumes by the local grid and more flexible plant maintenance,” Gao said.

He sidestepped questions if CGN will consider asking for permission to cut its regulated power price and bypass the grid operator to sell directly to major customers.

“We have reported our situation to the government and have gained their support so that our two Hongyuanhe units were allowed to operate last winter,” he said. “Next winter, we hope three units can operate.”

READ MORE: CGN Power plans more asset acquisitions from parent

Beijing last year issued regulations that would facilitate the expansion of direct power sales between generators and users as part of power sector reforms, which will encourage greater competition and efficiency gains in a highly regulated market dominated by two state-owned giants in the distribution segment.

Chief financial officer Yue Linkang told the South China Morning Post after the briefing that direct power supply is among ways being discussed with the government.

With coal-fired power, wholesale prices cut by an average 8 per cent since the start of the year, chairman Zhang Shanming said CGN will strive to meet the competition by seeking to cut costs and “actively participate in power sector reform”.

Its Ningde plant in Fujian province signed an agreement with the local government three years ago, under which the grid operator can share a part of the revenues from the plant’s output exceeding 7,000 hours a year. Its three units’ utilisation ranged from 6,458 to 7,527 hours last year.