Datang soars on news of sell-off of unprofitable coal operations
Disposal of assets will lighten firm's debt load and is part of the central government's reforms
Datang International Power Generation shares rose 23.1 per cent yesterday after the company said it would sell part or all of its loss-making coal-to-chemicals and coal-to-natural-gas operations as part of Beijing's economic and state-sector reforms.
While the final price it gets for disposing of the assets to state-owned China Reform Corp will depend on their valuation and negotiations, the deal will lighten Datang's debt load and improve its profitability.
"The restructuring is hugely positive to Datang International as the coal-to-chemicals segment has not been profitable … we expect [it] to remain loss-making [this year and next year]," Credit Suisse Asia's head of utilities research, Dave Dai, said in a note.
Dai said Datang's profit would rise 9 per cent next year if a half stake in the assets was sold, and by 18 per cent if they were all sold.
Datang said the disposal was being undertaken "to conform with the request to adjust the economic structure of the state in recent years".
Restructuring is hugely positive ... as the segment has not been profitable
Macquarie Securities' head of Asia utilities and renewables research Gary Chiu said in a note the management aimed to complete the deal by early next year.