Opportunities amid Crisis
Year:2009 ISSUE:1
COLUMN:M & A, BUSINESS & TRADE
Click:209    DateTime:Jan.04,2009
Opportunities amid Crisis      

The story of "survival of the fittest" has started to repeat in a wide range of industries while the market has entered the period of consolidation, all due to the global economic depression and China's slowdown.
    Sinopec Group and CNPC (China National Petroleum Corporation) recently put up on sale some assets on the equity exchanges in Shanghai and Beijing while CNOOC unveiled its business strategy adjustment plan. (CCR2008 No. 26) A series of restructurings in chemical related sectors emerged in the economic crisis.

Coal

The coal industry is active and fast in restructuring. Both China Pingmei Shenma Energy Chemical Group Co., Ltd. and Henan Coal Chemical Group Co., Ltd. were formed on December 5th, 2008 by restructuring seven large-scale coal and chemical groups in Henan province.
   China Pingmei Shenma Energy Chemical Group Co., Ltd. consists of Pingdingshan Coal Group and Shenma Group. Pingdingshan Coal is a large-scale integrated coal company whose business covers mine prospect, design, development and construction, with annual output of more than 40 million tons of coal. Shenma is China's largest producer for nylon, and also the world's largest maker for cord and fiber filament. The new China Pingmei Shenma Energy Chemical will develop itself as an energy chemical group focusing on coal mining and dressing, coke chemicals, nylon- and salt-based chemicals.
    Henan Coal Chemical Group Co., Ltd. was jointly set up by five companies including Yongcheng Coal Power Co., Ltd. and Hebi Coal Group. Counting on coal and mining resources, the new company will focus on mining and fertilizer businesses, among others.
   Furthermore, SDIC Xinji Energy Co., Ltd. (SH: 601918) and SDIC Huajing Power Holdings Co., Ltd. (SH: 600886) announced in mid-December 2008 at the same time that their co-controller the State Development and Investment Corporation (SDIC) is planning major asset restructuring. The market widely expected SDIC would regroup its power assets to pool it together with coal business.
   In Hebei province, Jizhong Energy Group was created after the local government consolidated coal resources. Its listed unit, Jinniu Energy Co., Ltd. (SZ: 000937) also become a platform for group listing.

Power

In the power industry, GD Power Development Co., Ltd. (SH: 600795) said in December 2008 it planned to pay RMB1.266 billion to increase its stake in Ningxia Yinglite Power Group Co., Ltd. to 51%. The investment could on one hand strengthen its power assets, and on another make Yinglite a strategic platform to strengthen presence in chemical business, GD Power said. Yinglite is building a complex in Nindong industrial park in Ningxia Hui Autonomous Region for coal-based chemicals, fine chemicals and solar new materials.
   GD Power's acquisition of Yinglite, along with Huaneng Group's acquisition, could soon trigger a new wave of restructuring and acquisitions in the power sector, power industry watchers said.

Building materials

The building material sector is also not inactive. Tangshan Jidong Cement Co., Ltd. (Jidong Cement, SZ: 000401), the leader in the north China cement market, reported on December 15th, 2008 it would increase RMB200 million of investment into its joint venture in Inner Mongolia Autonomous Region. In addition, it plans to purchase the 30% interest in Jidong Cement Abaga Co., Ltd. held by the labor union of Hebei Jidong Cement Group. Jidong Abaga is preparing to construct a 2 500 t/d line for clinker cement.
   Jidong Cement disclosed it will focus on Shanxi province in the future for its northwest market expansion plan, as the Inner Mongolia market has already seen a basic balance between supply and demand. Jidong Cement signed deal with Shanxi Guashan Cement Co., Ltd. on November 28th, 2008 to set up Jidong Cement Jiaocheng Co., Ltd. The joint venture plans initially to build a 1 800 t/d clinker cement line, and a 4 500 t/d line for the second phase along with power stations running on waste heat. The total investment is estimated at around RMB1 billion. Earlier on August 9th, Jidong Cement has announced it plans to invest RMB5 million in Inner Mongolia's Damao Qi to build two clinker cement production lines, each with a daily capacity of 4 500 tons.

Gas

Sichuan Datong Gas Development Co., Ltd. (Datong, SZ: 000593), whose shares were suspended from trading since December 5th, 2008, released it is planning major asset restructuring. Tianjin Datong Investment Group Co., Ltd., its controlling shareholder, has signed a letter of intent with Shanxi Jinye Coal Coke Group Co., Ltd. (Jinye) for asset swap. Jinye will transfer assets into Datong in exchange for Datong's shares.
   CNPC is also consolidating its downstream natural gas business. Its subsidiary Jilin Petrochemical Co., Ltd. handed the piped gas business over to Kunlun Gas Co., Ltd. on December 11th, 2008. The two sides thought to regroup the piped gas business would help optimize resources and improve overall competitiveness, leading to better and faster development.

   Market observers say it's a good time now for Chinese companies to go out for resources consolidation on the global stage.