The first M&A deal in the restructuring of central state-owned enterprises in 2016: Shenhua to acquire China Coal Science & Technology Corporation in its entirety

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The first merger in the restructuring of central state-owned enterprises in 2016: Shenhua is set to acquire China Coal Science & Technology’s assets / Source: Date: 2016-05-09 Clicks: 1 Four full months have passed this year, yet no mergers within the context of the restructuring of central state-owned enterprises have taken place yet. Although Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission, had previously said that \"more efforts would be made,\" the latest news regarding the restructuring of central state-owned enterprises dates back to December 29, 2015, when China Merchants Group and Sinotrans carried out a strategic merger. Who will be the first deal in the 2016 restructuring? On May 5, an anonymous source close to the State-owned Assets Supervision and Administration Commission revealed to a reporter from China Times that China National Coal Group Corporation (hereinafter referred to as “CNCC”) will be fully integrated into Shenhua Group, and the relevant procedures are currently in progress. Analysts believe that through Shenhua’s restructuring, China National Coal Technology and Engineering Group can enhance its capabilities in research and development, promote the clean use of coal across the entire industry, throughout its life cycle, and along the whole value chain. This approach also helps to drive Shenhua Group toward a management model similar to that of state-owned capital investment and operation companies, thereby further strengthening its core competitiveness and the efficiency of state-owned capital. A source at Shenhua also confirmed to our reporter that “the group is in contact with a research institute.” According to this person, this is an important step for Shenhua in implementing its strategy for clean energy across the entire industry chain. Although the individual did not reveal which institution it was, the reporter learned that this research institute is actually China Coal Science and Technology Group. According to available information, the predecessor of China Coal Science & Engineering was the China National Coal International Engineering Design and Research Institute and the Coal Science Research Institute. Its current main business areas include design and engineering general contracting, coal mining machinery and equipment, safety technology and equipment, demonstration projects, energy conservation and environmental protection, as well as new energy. “SinoCoal Science & Technology holds a clear advantage, especially in areas such as water-coal slurry, the development and utilization of coalbed methane, coal-fired boilers, coal-based carbon materials, the hydrogenation of coal tar, and the industrialization of water treatment technologies. ”The aforementioned source said. China National Coal Technology & Engineering Group has long been committed to the technological transformation of achievements related to the efficient and low-carbon utilization of coal, while Shenhua is also stepping up its efforts in the development of clean energy; it actively promotes the efficient use of traditional clean energy sources, the development of new energy sources, the growth of industries focused on energy conservation and environmental protection, as well as the advancement of clean energy technologies and services. Ling Wen, general manager of Shenhua Group, said that the strategy for clean energy will be implemented comprehensively in various areas such as coal mine production, power generation, railway and port transportation, as well as coal chemical processing. Restructuring is also beneficial for China National Coal Group; against the backdrop of coal inventory reduction, there will inevitably be a decline in orders for coal mine projects and coal mining equipment. As China’s largest coal enterprise, Shenhua can provide China National Coal Group with a substantial volume of orders. “Such integration helps to leverage the synergistic effects of the commercial capabilities of central state-owned enterprises and the research capabilities of scientific research institutions, and it generally has a very positive impact on the related companies. ”An expert who has long followed the restructuring of state-owned enterprises told our reporter. Shenhua’s restructuring of China Coal Science and Technology is a typical example of this; it facilitates the integration of industry, academia, and research. More importantly, such vertical integration within the industrial chain helps to minimize bargaining costs. Similar to the restructurings of Minmetals Group and MCC Group in the past, MCC, as a contractor, and Minmetals, which holds mineral resources, have a upstream-downstream relationship. Vertical restructuring is also more favored. The reporter noted that among the 6 mergers and reorganizations of central state-owned enterprises last year, aside from the two horizontal reorganizations involving CRRC and CNR, as well as COSCO and China Shipping, the other 4 pairs of such enterprises adopted a vertical reorganization strategy. The aforementioned source told our reporter that the State-owned Assets Supervision and Administration Commission is working to eliminate the various redundant vertical levels within state-owned enterprises. In terms of the specific methods of restructuring, in addition to horizontal integration, more emphasis is placed on vertical restructuring strategies, as such restructuring helps state-owned enterprises achieve the goal of becoming better and stronger. Transformation 　　Restructuring China Coal Science & Technology is just part of Shenhua Group’s ambitious plans. Shenhua is implementing three 5-year plans over the 15-year period from 2015 to 2030, striving to become a world-class provider of clean energy. 　　According to Zhang Yuzhuo, chairman of Shenhua Group, during the 13th Five-Year Plan period, the group will overall adopt an industrial structure that features clean coal production as the core, with clean coal power generation and clean conversion of coal serving as the two supporting elements, supplemented by industries such as new energy, environmental protection, nuclear power, and hydrogen energy – a structure that can be described as \"one core, two wings, with appropriate diversification\". Reporters learned that Shenhua has already upgraded more than 20 power units, with a total capacity of 15 million kilowatts, to achieve \"ultra-low emission\" standards. By 2020, all coal-fired power units of Shenhua had achieved ultra-low emissions of pollutants. 　　“Shenhua is also making significant efforts to develop new and renewable energy sources such as wind power and solar power. By investing in nuclear power project development, it is actively seeking nuclear power licenses and looking for opportunities for cooperation in the research, development, and demonstration of small-scale nuclear reactors, in order to build up a pool of talent in nuclear energy technology. ”Ling Wen said. 　　The financial reports show that China Shenhua has formulated a plan to initiate the acquisition of 14 unlisted assets belonging to Shenhua Group and its subsidiaries by June 30, 2019. 　　At the same time, Shenhua has stepped up efforts to shut down outdated coal mines. Between 2014 and 2015, Shenhua reduced the production capacity of nearly 10 coal mines operated by its four subsidiary coal companies; the total reduction in production over those two years was 95 million tons, while coal sales decreased by more than 170 million tons in the same period. 　　“We are striving to shift our development philosophy, moving from focusing on expanding the scale of the company to concentrating on strengthening and optimizing its core business. By integrating internet-based thinking with traditional industrial approaches, we aim to continuously enhance Shenhua’s core competitiveness. ”The aforementioned source said. 　　Shenhua is striving to bring about a transformation in its mode of development, shifting from one based on reliance on resources to one driven by innovation, and from being a major coal distributor in the world to a globally renowned supplier of clean energy. It is accelerating the establishment of an industrial supply system for clean energy that reflects Shenhua’s characteristics, in order to develop new advantages for the company. 　　The aforementioned source told our reporter that following the restructuring of China Coal Science and Engineering, Shenhua Group’s business scope will expand from current areas such as coal, power generation, heating, ports, railways, shipping, coal-to-oil production, and coal chemical industry, to include sectors such as coal machinery equipment, engineering design, energy conservation and environmental protection, as well as new energy sources. Additionally, the group will also enter the nuclear power sector for the first time. 　　Diversified development poses challenges to Shenhua Group’s control capabilities. Reporters have learned from authoritative sources that 60 reform measures for Shenhua have been formulated; the group’s parent company is set to undergo reforms in line with the management model of state-owned capital investment and operation companies, with the aim of further enhancing Shenhua’s core competitiveness and the efficiency of state-owned capital.