(Yicai Global) June 5 -- China Shenhua Energy Co. [SHA:601088] and GD Power Development Co. [SHA:600795] may be merging.
Trading of shares of both companies was suspended today after they released nearly identical announcements saying that they received important notices from controlling shareholders to ready themselves for an important development.
Shenhua Group Corporation Ltd., China's largest coal enterprise, and China Guodian Corp., one of the country's five major power producers, have majority stakes in China Shenhua Energy and GD Power Development, respectively.
"If Shenhua merges with a power company, it would eliminate tension in the coal power industry, reduce risk, form a large-scale energy enterprise that integrates coal business, and improve industrial efficiency," said Xing Lei, director of the Central University of Finance and Economics' China Coal and Economy Research Center.
The combination of the two groups would break down industry barriers, said Zhou Dadi, vice chairman of the China Energy Research Society and former head of the National Development and Reform Commission Energy Research Institute. "It would help vertical development of enterprises, as the formed entity would not just be a coal company or power company," Zhou said.
"An announcement will be forthcoming," said Meng Jian, news spokesman and director of the Publicity Department, commenting on merger speculation.
Many Shenhua employees excused themselves from being interviewed about a possible hook-up deal.
"Combining Shenhua and a power company would help lower raw material costs for the new enterprise's power business, boost competitiveness and push down the price of electricity," Xing said.
On the other hand, if Shenhua merges with a state-owned energy enterprise, the formed entity will focus on power generation and Shenhua's status as a coal market leader may weaken, while the domestic power industry's bargaining strength may improve, said Xing.
The integration of coal and power firms could be advantageous to both sides and help them raise operating results, promote international competitiveness and seize overseas market share along the Belt and Road, said Wu Qi, who heads Hengfeng Bank Research Institute's Commercial Bank Research Center.