Shanghai-listed SDIC Huajing Power Holdings Co Ltd, a subsidiary of the State Development and Investment Corp (SDIC), has got the nod to restructure its power generating assets to create a super power company.

The restructuring will boost SDIC Huajing Power's total installed capacity by 86.13 percent to 12.64 gW. [Photo from Xinhua]

SDIC Huajing Power Holdings said that it received approval from the State Council, China's cabinet, to acquire SDIC Electric Power Co from its parent for 7.69 billion yuan (US$1.13 billion).

Huajing Power will issue 940 million shares at an average price of 8.18 yuan apiece to SDIC to fund the acquisition, the company said in a stock exchange filing.

The acquisition will boost SDIC Huajing Power's total installed capacity by 86.13 percent to 12.64 gW. Meanwhile, the firm's installed capacity of hydropower will be increased to 5.215 gW from the current 565,000 kW, the company said in another report in June.

The company's shares jumped 3.26 percent in Shanghai yesterday to close at 10.76 yuan.

After the acquisition, the proportion of installed hydropower capacity at SDIC Huajing Power Holdings will amount to 41.25 percent, a move analysts said would help the firm improve its profitability, as it would reduce its exposure to volatile coal prices.

"The injection of hydropower assets is a big boon to the company as it can reduce the proportion of the coal-fired power generating capacity," said Peng Quangang, an electricity analyst at China Merchants Securities.

Volatility in coal prices, Peng said, has been eating into the profit of coal-fired power plants in recent years. Many of China's major coal-fired power firms suffered huge losses last year as a result of escalating coal prices and falling electricity demand.

The asset injection will expand SDIC Huajing Power's business coverage, from seven provinces to nine, the company said.

Industry analysts also pointed out that the increased proportion of installed hydropower capacity could benefit the company's development in the long run, since hydropower was a clean source of energy.

Currently, thermal power accounts for about 80 percent of total power capacity. To control pollution, the government has been encouraging power companies to develop clean energy, including wind power, hydropower and solar energy.

Industry experts estimate that 60 percent of all known hydropower resources will be fully developed by 2012. The remaining portion will be located in remote areas that are deemed uneconomical to tap, said Jin Xuexiang, an analyst with Donghai Securities.

"The long-awaited move can turn the firm into the country's second largest hydropower firm, right behind China Yangtze Power Co," said Jin.

Earlier in June, the National Development and Reform Commission (NDRC), the top economic planning body, reportedly initiated a pilot project in Shaanxi province to narrow the price gap between thermal power and hydropower.

"Having one price for hydropower and thermal power might not be achievable in short term, but it's the ultimate goal," Jin added.

SDIC Electric Power Co, with a registered capital of 3 billion yuan, is a fully owned subsidiary of SDIC.

SDIC Electric realized 10 billion in operating revenue and 432 million in net profit last year. Its assets amounted to 55.5 billion yuan by the end of last year.

The asset buyout plan is also seen as part of SDIC's efforts to streamline its operations.

Established in 1995, SDIC is the largest State-owned investment holding company in the country, with business spread across power, coal mining, shipping, chemicals and financial sectors.

The investment company, which has another listed arm in addition to SDIC Huajing Power, has long planned to inject similar and related assets under its roof into the two listed companies. Besides the restructuring of the power assets, it is also working on a plan to put its coal mining assets into Shanghai-listed SDIC Xinji Energy Co.

(China Daily June 26, 2009)