Is the coal giant failing in Guizhou? Coal chemical industry assets were transferred for 1.6 billion

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On its path of continuous mergers and acquisitions, Yankuang Group, the coal giant based in Shandong, has also begun to shut down its loss-making projects; its largest coal chemical project, Dayang Chemical, which is now insolvent, is one of those being closed down. On January 7, reporters from The Beijing News observed at the Shandong Property Rights Exchange that 70% of the shares and 4.375 billion yuan in debts of Guizhou Kaiyang Chemical Co., Ltd. were put up for sale, with a listing price of only 1.6 billion yuan. According to the information available on the Shandong Property Rights Exchange, the listing price for 70% of the shares and 4.375 billion yuan in debts of the target company, Guizhou Kaiyang Chemical Co., Ltd., is 1.6 billion yuan; the value of those 70% shares is 0.0001 million yuan. In addition, Yankuang Group borrowed 2.838 billion yuan, Yankuang Finance Company provided entrusted loans amounting to 188 million yuan, Yankuang Chemical Company borrowed 100 million yuan, the China Development Bank provided loans of 795 million yuan, commercial banks provided loans of 300 million yuan, and financial leasing arrangements involved 154 million yuan. All these amounts were converted into claims that Yankuang Group held against Kaiyang Chemical, totaling 4.375 billion yuan, with a listed price of 1.6 billion yuan. According to the official website of Yankuang, Guizhou Kaiyang Chemical Co., Ltd. was established in August 2006. The total investment in the project amounted to 4.2 billion yuan, with the group company and Guizhou Kailin Group contributing 70% and 30% of that amount respectively. The project began official installation and construction at the end of 2009, and it is the facility in China with the largest single-unit ammonia synthesis capacity. As the largest coal chemical project within Yankuang Group, Yankuang had high hopes for Kaiyang Chemical. In an article on its official website in 2013, Yankuang stated that the Kaiyang Chemicals project, with an annual production capacity of 500,000 tons of synthetic ammonia, is a key industrial project in Guizhou Province. It is also a major project under the group’s strategy in Guizhou to focus on coal-based industries, integrate coal and electricity production, and develop coal chemical industries. “During this difficult period of continued decline in the coal chemical industry, this flagship in the field of coal chemicals bears the heavy burden of helping the group company transform its coal chemical operations, adjust its structure, and reduce losses while increasing profits. In early 2013, the 500,000-ton per year synthetic ammonia production project of Guizhou Kaiyang Chemical Co., Ltd. was completed and put into operation. However, the profitability of Kaiyang Chemical is not satisfactory. As of November 2017, Kaiyang Chemical’s total assets amounted to 4.134 billion yuan, its total liabilities were 5.078 billion yuan, and its owner’s equity was -0.944 billion yuan, indicating that it was in a state of insolvency. During the same period, operating revenue was 1 billion yuan, while net profit was -480 million yuan. According to its official website, Yankuang Group is a super-large energy enterprise whose core industries include coal, chemicals, equipment manufacturing, and financial investment. Its holding subsidiary, Yanzhou Coal Industry, is listed in Shanghai, **, and New York, while Yankuang Australia is listed in Australia and is the largest independent coal company there. As a result, Yankuang Group is the only coal enterprise in China to have listing platforms in four different regions, both domestically and internationally. At present, Yankuang has become a large-scale enterprise group with coal production exceeding 100 million tons, operating revenue exceeding 100 billion yuan, and total assets of over 200 billion yuan. It ranks 6th among the top 50 coal enterprises in China in 2016, and has established a development framework featuring six major bases: the Shandong headquarters, Shaanxi-Mongolia region, Guizhou, Xinjiang, Australia, and Canada. As early as 2016, Yankuang decided to restructure Kaiyang Chemical. In July 2016, the official website of Yankuang Group published a statement stating that efforts were being made to improve the management of loss-making enterprises; plans for managing the loss-making units within the group’s seven subsidiaries were formulated, and the asset restructuring plan for Kaiyang Chemical was approved by the group company. On December 14, 2017, Yankuang’s official website published another article stating that over the past few years, the group company has achieved significant results in dealing with \"zombie enterprises\" and addressing the issues of \"loss-making enterprises\". But for now, we can’t afford to feel relieved at the thought that the vehicles have arrived at the station or the ships have docked; companies such as Kaiyang Chemical and International Coking, which are suffering from chronic losses, continue to drain the profits of the group company. Regarding the qualifications of the potential acquirer, Yankuang stated that the interested party must be a corporate entity established in accordance with the law and currently in operation within China, must possess sound business reputation and financial conditions, as well as the ability to make the payments required for this transaction and to provide the necessary guarantees. Additionally, this project does not accept consortium bids. Yankuang stated that the intended transferee must commit to repaying Yankuang Group, on behalf of Dai Kaiyang Chemical, the additional debts incurred toward Yankuang Group from October 31, 2017, up to the date of the business registration change, within 2 working days after the completion of the post-period audit. Yankuang stated that the intended transferee must commit to ensuring that any profits generated by Kaiyang Chemical from the assessment date until the date of the industrial and commercial registration changes shall be shared by the original shareholders in proportion to their shareholdings, while any losses shall be borne by Kaiyang Chemical. Prior to the listing of Kaiyang Chemical’s assets, Yankuang had been pursuing continuous external mergers and acquisitions. In terms of amount, Yanzhou Coal Industry, a subsidiary of Yankuang, spent over 20 billion yuan on mergers and acquisitions in 2017. In early 2017, Yanzhou Coal and Rio Tinto, one of the world’s largest mining companies, both announced that Yanzhou Coal intended to acquire Rio Tinto’s Australian subsidiary United Coal for $2.35 billion. Eventually, Yanzhou Coal raised its bid to $2.7 billion (about 16.8 billion yuan), outbidding Glencore, the world’s largest commodity company, and thus completed the acquisition. Following the merger and acquisition, Yanzhou Coal’s subsidiary, Yanzhou Coal Australia, became Australia’s largest independent coal operator. At the end of November this year, Yanzhou Coal Industry announced that it would invest 2.153 billion yuan in Linshang Bank, acquiring a 19.75% stake in the bank’s total capital after the capital increase and expansion, marking its latest move to further expand its presence in the financial sector. Yankuang Group states on its official website that it owns or has stakes in 15 financial enterprises. In 2016, the scale of its financial activities was 30 billion yuan, with capital operation revenues exceeding 2 billion yuan. The group aims to have financial assets worth over 100 billion yuan by the end of the 13th Five-Year Plan period, with annual operating revenues exceeding 50 billion yuan, and for capital operations to contribute more than 50% to economic growth. In December 2017, Yitai Coal, the leading private coal company in China, announced that it would transfer 25% of its shares in the Zhundong Railway for 1.9425 billion yuan; the buyer was Yanzhou Coal Ordos Energy Chemical Co., Ltd. Yanmei Ordos Energy Chemical Co., Ltd. is part of Yanzhou Coal Industry, a listed company under Yanke Mining Group; this represents the latest example in Yanke Mining Group’s ongoing M&A activities. Yanmei states that by cooperating with Yitai, it can not only effectively resolve the issue of transportation routes for coal from its bases in Shaanxi and Inner Mongolia, but also enhance its control over coal sales and railway transport capacity in those areas.