Guoxin withdraws from the restructuring of Datang Coal Chemicals; Shenhua may become the successor?

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This post was last edited by 654262293 on 2016-4-11 at 18:26. Guoxin withdraws from the restructuring of Datang Coal Chemical; Shenhua may become the successor? Author/Source: Date: 2016-04-11 Clicks: 13 A series of setbacks have once again plunged Datang Coal Chemical Industry into restructuring difficulties. The scene of the piping accident at the evaporation pond dam in Datang Dolun Coal Chemical Industry. Chen Jiayun/Photography Report by Wang Lining, our newspaper’s correspondent in Xi’an The frequent incidents of environmental pollution may slow down the restructuring process of the Datang Coal Chemical Project. 　　At around 2 p.m. on April 4, a piping incident occurred in the dam of the evaporation pond used for storing industrial wastewater at Datang Duolun Coal Chemical Industry, resulting in the leakage of some of the wastewater. It is understood that the local ** authorities and environmental protection departments have established an investigation team to investigate and handle this incident. 　　Previously, the **Ministry of Environmental Protection and environmental organizations had pointed out pollution issues at the Datang Duolun coal chemical project. This industrial wastewater spill has once again tightened the strings on Datang Coal Chemical’s focus on environmental issues. 　　Recently, Datang Power Generation (601991) issued a statement stating that China State Capital Investment Corporation Limited (hereinafter referred to as “CSIC”) has terminated the restructuring efforts related to the company’s coal chemical business unit and related projects. 　　According to the 2015 annual report released by Datang Power in the same period, the company achieved a net profit of 2.8 billion yuan last year, a 56.2% increase on a year-on-year basis; however, its coal chemical business segment incurred losses of 4.305 billion yuan. The continuously loss-making coal chemical business has become a major burden that drags down Datang’s performance and increases its financial load. Furthermore, the environmental impact of coal chemical projects is also a tough issue that Datang must address. According to our ongoing coverage, this is not the first time that environmental pollution incidents have occurred at the aforementioned Tolun project. 　　Datang Power Generation stated that the company’s controlling shareholder, Datang Group, will take the lead in advancing the restructuring of the coal chemical sector and related projects. Regarding the arrangements following the restructuring, reporters from China Business News contacted Datang Group and Datang Power Generation by phone and in writing, but as of the time of publication, no response was received. 　　Guoxin’s withdrawal: After a long wait of one year and nine months, the restructuring of Datang Coal Chemicals, which investors had been hoping for, ultimately did not take place. 　　In the announcement dated March 30 regarding the “adjustment of the restructuring plans for the coal chemical industry business,” Datang Power stated that, following discussions, on March 29, 2016, Guoxin Company and Datang Power signed an “agreement to terminate the restructuring framework agreement.” 　　As early as July 7, 2014, Datang Power Generation and Guoxin Corporation signed a Framework Agreement on the Restructuring of Coal Chemicals and Related Projects, with the aim of restructuring Datang Power Generation’s coal chemicals business unit and related projects. Under the framework agreement, through cooperative restructuring or equity acquisition, Guoxin Company will acquire the coal chemical business segment of Datang Power Generation as well as the assets or equity associated with related projects. 　　The scope of the restructuring covers the investment projects in coal chemical industry and related sectors under Datang Power, including: Inner Mongolia Datang Dolun Coal Chemical Industry, Inner Mongolia Datang International Keshiketeng Coal-to-Natural Gas Project, Liaoning Datang International Fuxin Coal-to-Natural Gas Project, Datang Hulunbuir Fertilizer Plant, Inner Mongolia Datang International Xilinhot Mining Company, as well as related supporting and associated projects. 　　At the end of August 2014, Liu Yan, general manager of the Capital Operation Department of Datang Power Generation, said that the specific restructuring plan would be led by the State-owned Assets Supervision and Administration Commission, with completion planned for the end of 2014. “It was originally expected to be completed within 2014, but later we thought about whether it could be finished in the first half of 2015. However, some uncertainties arose during the implementation process. ”At the interim results briefing held in August 2015, Wu Jing, vice chairman and general manager of Datang Power Generation, said that the original direction for this restructuring remains unchanged, and it is still being pursued. The restructuring is expected to be completed by the end of 2015, allowing the company to finish the task of adjusting its business structure by the end of the 12th Five-Year Plan period. 　　The timeline for the restructuring kept getting postponed; not only did Datang Power fail to meet the restructuring goals set at that time, but it also went its own way separate from Guoxin Corporation. What exactly is going on behind this? In response to this issue, the reporter contacted the Secretariat of the Board of Directors of Datang Power Generation, its public relations department, Datang Group, and other relevant parties on multiple occasions, but failed to receive any responses. 　　“In fact, the asset assessment for Datang’s coal chemical industry was completed by the end of 2014, and it was already clear that these were Datang’s non-performing assets. If Guoxin is to take on this ‘burden’, it must naturally consider its own requirements regarding the assets and performance. ”An insider at Datang New Energy said that the Datang coal chemical project has already seen investments of over 60 billion yuan, but due to low international oil prices and poor economic profitability of coal chemical operations, the assets are at risk of significant depreciation. It is likely that the two parties will find it difficult to reach an agreement on the asset valuation and restructuring prices. 　　The individual said that the coal chemical industry requires a high level of expertise, and it is more appropriate for specialized coal chemical companies to handle it. Therefore, in the restructuring of Datang’s coal chemical business, even if Guoxin Company is involved in the restructuring, it is likely to play only the role of an intermediary. 　　Will Shenhua take over? Wu Xiuzhang’s joining Datang this time is likely aimed at helping the company make progress in the coal chemical sector. 　　Along with announcing the termination and restructuring of Guoxin Company, Datang Power also stated that, following discussions, the company’s controlling shareholder, Datang Group, will take the lead in advancing the restructuring of the coal chemical sector and related projects. 　　So, will Datang Group operate its coal chemical business independently, or will it bring in other companies for restructuring? The aforementioned person from Datang believes that Datang Group is under significant financial pressure, so the second option is likely to be the one that will be chosen. 　　It is worth noting that, according to a statement released by the State-owned Assets Supervision and Administration Commission on April 6, Wu Xiuzhang was approved as the candidate for deputy general manager of China Datang Corporation, with a probation period from March 2016 to February 2017. According to available information, Wu Xiuzhang holds a doctoral degree in chemical engineering and technology. Before this job change, he served as the chairman of China Shenhua (601088) Coal-to-Oil Chemicals Co., Ltd., and possesses extensive management experience in the field of coal chemistry. 　　This change in position has once again sparked speculation among investors in Datang Power Generation – whether Datang Coal Chemical will still be taken over by Shenhua Group, as has been rumored for a long time. 　　The reporter tried to contact Shenhua Group but failed to get a response from them. 　　On the other hand, amid the impact of low oil prices in the coal chemical industry, Shenhua Group’s coal chemical business remains one of the few companies in China that continues to turn a profit. Data shows that in 2015, Shenhua Coal Chemical’s operating revenue was 5.55 billion yuan, its operating costs were 4.205 billion yuan, its operating income was 649 million yuan, and its operating profit margin was 11.7%. 　　Previously, our newspaper also reported that Shenhua Group had held discussions with Datang regarding the restructuring of coal chemical operations. Shenhua is not very interested in coal-to-natural gas projects; it is only interested in considering the Tolon coal chemical project. In addition, Shenhua has also proposed a significant impairment charge for Tolon Coal Chemicals. 　　Whether Shenhua takes over or not, according to the arrangements made by the State-owned Assets Supervision and Administration Commission, Wu Xiuzhang’s entry into Datang this time is likely aimed at helping Datang make progress in the coal chemical sector. However, the operations of Datang Power’s coal chemical business segment are not optimistic. 　　The annual report shows that in 2015, Datang Power continued to invest 2.442 billion yuan in its coal chemical industry operations, bringing the total actual investment to 64.2 billion yuan. Datang Power’s coal chemical assets amount to 68.65 billion yuan, while its liabilities in this sector have reached as high as 65.3 billion yuan, resulting in a debt-to-asset ratio of over 95%. 　　In 2014, the coal chemical business unit of Datang Power Generation had debts amounting to 58.55 billion yuan; after one year, the debt situation of this business unit worsened. 　　Through the annual report, investors can also see Datang Power’s performance in the coal chemical industry last year: in 2015, Datang Power’s Dolun coal chemical project produced a total of 137,000 tons of polypropylene, while its Keqi coal-to-natural gas project generated 552 million cubic meters of natural gas. 　　The Tolun project, which was planned by Datang, was intended to have an annual production capacity of 460,000 tons of coal-based olefins, while the Keqi coal-to-natural gas project was supposed to have a capacity of 400,000 tons. The actual output from these two projects fell far short of the planned levels. The Fuxin coal-to-natural gas project, for which over 10 billion yuan has been invested, stopped construction at the end of 2014 and has not yet resumed work. In its annual report, Datang Power stated that it carried out infrastructure construction activities \"as planned\" last year. In 2015, the company’s depreciation and amortization expenses in the coal chemical sector amounted to 1.3 billion yuan, while asset impairment losses totaled 1.295 billion yuan. 　　The coal chemical industry is characterized by high depreciation and asset impairment costs. At present, Datang Power does not have stable production from these three coal chemical projects, and the Fuxin coal-to-gas project even lacks a timeline for commencement; this means that Datang will continue to bear the financial pressures associated with its coal chemical assets in the future. 　　Oil prices have not seen a significant rebound in the short term. Against the backdrop of overall weakness in the coal chemical industry, it is likely to be far more complicated for Datang Power to divest these three coal chemical projects that act as a burden, and to find buyers for them. http://www.nmtech.com.cn/*nwen_mhg_xx.asp?id=176644