China Resources Power rises on sale of coal assets previously embroiled in lawsuit

Buyer Guoyuan will take over assets for a nominal 1 yuan and also assume debts of 11 billion yuan

PUBLISHED : Monday, 20 August, 2018, 1:09pm
UPDATED : Monday, 20 August, 2018, 7:38pm

Shares of China Resources Power Holdings (CR Power) rose as much as 3.1 per cent on Monday after it unveiled the sale of four coal mining units, including two that were embroiled in a lawsuit.

The legal challenge was brought by minority shareholders five years ago alleging CR Power directors – including disgraced former chairman Song Lin – of breaches of fiduciary duties related to a troubled acquisition.

Senior executives of CR Power maintained in 2013 they were not aware of any irregularities concerning a controversial acquisition of coal mines in 2010.

They dropped the lawsuit in early 2014 after the Hong Kong High Court rejected an application to add new allegations to the original complaint.

CR Power – one of China’s largest power producers and a unit of state-owned conglomerate China Resources Holdings – has agreed to sell its stakes in Shanxi China Resources Liansheng Energy Investment (CR Liansheng), Shanxi China Resources Coal and Taiyuan China Resources Coal (CR Taiyuan) for a nominal sum of 1 yuan (14.5 US cents) to Guoyuan.

Guoyuan – co-owned by central government-owned asset restructuring firms China Guoxin and China Chengtong besides energy giants China Coal Group and National Energy Group – has agreed to repay 11 billion yuan owed by the three units to CR Power.

Guoyuan’s mandate is to improve the efficiency of state-owned power companies and promote consolidation.

The units to be sold own 23 mines in Shanxi province, of which eight were in operation, five under construction or suspended and 10 ordered by the government to be shut on overcapacity concerns.

CR Power has also agreed to sell its parent 51 per cent of the Daning coal mine in Shanxi with 4 million tonnes of annual capacity for a price to be determined after an independent valuation is done. It bought the stake in 2011 for 4 billion yuan.

“The board believes that the transfer of coal assets will help optimise the company’s business structure and promote its strategic transformation, thereby making the main business focus clearer and enhancing the company’s core competitiveness,” chairman Li Ruge said in a filing to Hong Kong’s bourse on Sunday.

Although the deal – subject to financial audit and independent valuation – would cut CR Power’s net debt by at least 15 billion yuan, brokerage Jefferies’ analysts said it went “against [industry regulator] National Development and Reform Commission’s intention to raise the amount of internally supplied coal for power producers”.

“Deleveraging seems a more urgent government goal,” they wrote in a note on Monday.

Since around a decade ago, power generators have been encouraged by Beijing to invest in coal mines to supply their own needs as a hedge against volatile coal supply and prices.

According to a Daiwa Capital Markets report, after the Shanxi coal assets sale, CR Power will still have four mining assets in Jiangsu, Hunan and Henan provinces.

CR Power ended the day 1.8 per cent higher at HK$14.62.