Two more Chinese nuclear firms poised for consolidation

If marriage materialises, it would see the number of companies directly under the management of the central government reduced to 101 from 170 in 2009

PUBLISHED : Monday, 20 March, 2017, 6:35pm
UPDATED : Monday, 20 March, 2017, 10:46pm

State-owned China National Nuclear Corp (CNNC) and China Nuclear Engineering & Construction Corp (CNEC) have emerged as the latest candidates for a merger, as Beijing pursues consolidation among central government-run enterprises to drive efficiency gains.

If the marriage materialises, the restructuring would see the number of companies directly under the management of the central government reduced by one to 101, and result in a fully up and downstream integrated powerhouse in the nuclear industry.

It could also see the two Beijing-based nuclear giants re-integrated, after they were separated into independent entities from the erstwhile behemoth China Nuclear Industry Corp in 1999 in the previous round of major restructuring of state-owned enterprises.

Two listed units of the two companies – China National Nuclear Power and China Nuclear Engineering – said in separate statements on Monday to Shanghai Stock Exchange that they have been notified by their respective parents that they are “planning certain strategic restructuring matters”.

They have not yet been confirmed and will require government approval when finalised, they added.

If realised, it could result in the second merger in two years in the state-dominated nuclear industry.

Two years ago the absorption of third-generation technology importer State Nuclear Power Technology and power plant-developer China Power Investment Corp created the third-largest nuclear power project developer.

Other examples of mergers among companies directly under the oversight of State-owned Assets Supervision and Administration Commission (Sasac) in recent years include China National Travel Service (HK) Group with China International Travel Service Group, train makers China CNR and CSR, shipping behemoths Cosco and China Shipping, and the folding of Sinotrans & CSC into ports giant China Merchants Group.

The number of enterprises under Sasac has gradually been reduced from over 170 enterprises in 2009, as Beijing seeks to enhance their competitiveness, especially internationally, by merging firms that are either competitors or have customer-supplier relationships.

CNNC is the nation’s second-largest nuclear power plant developer, after Shenzhen-based China General Nuclear Power Corp (CGNPC), which was set up in 1994.

Besides nuclear projects, CNEC has also completed municipal infrastructure, energy, transportation, petrochemical projects both in China and abroad, its web-site said, adding it is the only firm in the world that has continuously been building nuclear power plants in the past three decades.

The first sign of a potential merger of the CNNC and CNEC emerged three months ago, when former CNEC chairman Wang Shoujun was re-assigned by Sasac to become the chairman of CNNC, said Zhou Tao, a Beijing-based utilities sector analyst at Pacific Securities.

“Besides beefing up the merged entity’s competitiveness for winning overseas nuclear power projects, the merger would also consolidate the two firms’ defence businesses,” he told the South China Morning Post.

Although CNEC controls the vast majority of the domestic nuclear plants construction market, he said he believes CGNPC – parent of Hong Kong-listed CGN Power – will not be put at any disadvantage after its supplier CNEC is folded into its rival CNNC, since all three are state-owned.

In addition, he said CGNPC has been developing its own construction team and has given some work to another state-owned power plant construction firm, China Energy Engineering Group, to diversify its supplier sources.

He said it may make sense for CNNC to merge with CGNPC around five years down the line, after their Hualong Chinese third-generation technology is commercially proven domestically.

A parallel example is the joining of rail gials CNR and CSR, which were merged to avoid competition between two Chinese firms overseas, after their high-speed rail technology was well proven in the domestic market, he noted.