Datang Power sells its coal chemical business for 1 yuan

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Datang Power to Sell Its Coal Chemicals Business for 1 Yuan/Author/Source: Date: 2016-07-01 Clicks: 25 Datang International Power Co., Ltd. (601991.SH, Datang Power) announced on the evening of June 30 that it would sell all of its shares in four companies, including Datang Energy Chemicals Co., Ltd. (hereinafter referred to as the energy chemicals companies), as well as the assets related to one power generation project, to Zhongxin Energy Chemicals Company, a subsidiary of Datang Group, at a price of 1 yuan each. Over the past two years, Datang Power has been striving to divest its coal chemical business unit, and this time it has finally succeeded in shedding that burden on its parent company. Datang Power Generation primarily engages in power generation, focusing on thermal power generation, and has also expanded into various other businesses such as coal and coal chemical industries. In 2009, Datang Power officially entered the coal chemical industry. By the end of 2015, Datang Power’s total investment in non-raised-funding projects in the coal chemical sector amounted to nearly 64.2 billion yuan, which **exceeded the total investment of 49.8 billion yuan in its core business of thermal power generation. However, the coal chemical industry has suffered losses year after year; in 2015 it lost 4.3 billion yuan, and the total losses over the past three years amounted to 11.56 billion yuan. By the end of 2015, the coal chemical sector had debts of 65.3 billion yuan, resulting in a debt ratio of over 95%. Coal chemical industry represents a heavy burden for Datang Power Generation. In July 2014, Datang Power Generation announced that it had signed a framework agreement with China State Asset Management Corporation Limited to restructure its coal chemical business unit. However, after nearly two years, the restructuring efforts ultimately failed, and its termination was officially announced on March 29, 2016. Shortly thereafter, Datang Power issued another announcement stating that the restructuring of the company’s coal chemical business unit would continue to be led by its parent company, China Datang Group. The buyer in this transaction, SinoNew Energy Chemical Co., Ltd., was established on April 21, 2016; it is a company wholly owned by Datang Group. Clearly, this company was set up by Datang Group to assist Datang Power in divesting its coal chemical business. Nenghua Company is the company with the largest asset scale among the targets of this transaction. Founded in 2009, the company has total assets of 37.8 billion yuan. It holds 51%, 90%, and 60% of the shares in three companies respectively: Inner Mongolia Datang International Kesiketeng Coal-to-Natural Gas Co., Ltd. (Kesi Coal-to-Gas Company), Liaoning Datang International Fuxin Coal-to-Natural Gas Co., Ltd. (Fuxin Coal-to-Gas Company), and Datang Inner Mongolia Dolun Coal Chemical Co., Ltd. (Dolun Coal Chemical Company). These three companies constitute the core coal chemical business segment of Datang Power. Keqi Coal-to-Gas Company is the first coal-to-gas demonstration project in China approved by the National Development and Reform Commission. Since construction began in 2009, it has had to shut down repeatedly due to technical issues, and in January 2014 there were reports of casualties resulting from poisoning incidents. Fuxin Coal-to-Gas Company was performing poorly, with losses exceeding 1.29 billion yuan in 2015. Although the Tonglun coal chemical project was the world’s first large-scale industrial application in the field of coal-based olefins and also a **pilot project for coal-based olefins, it has been plagued by huge losses and environmental pollution. In 2015, Tolon Coal Chemical Company incurred losses of over 2.8 billion yuan, with its revenue falling short of 1 billion yuan; in 2014, its losses exceeded 4.8 billion yuan. In May 2016, the media reported that the Dorun Coal Chemical Company had discharged pollutants without authorization, contaminating the local drinking water. On June 8, Datang Power Generation issued a statement stating that Duolun Coal Chemical Company experienced leakage in the dam of its evaporation pond in April; as a result, all of its facilities were shut down for maintenance on May 18. Industry experts say that Datang Power has transferred its highly loss-making businesses to its unlisted parent company, Datang Group; such a transfer essentially does nothing to change the fact that these coal chemical projects continue to incur losses, with the parent company now bearing all those losses in the future.