(Yicai Global) July 13 -- The top two state coal enterprises in China's eastern coastal province of Shandong, Yankuang Group and Shandong Energy Group, are mulling a restructuring for a possible merger which will form a coal producer second only to China Energy.

Jining-based Yankuang's listed unit Yanzhou Coal Mining disclosed this plan in a statement it issued yesterday, adding the scheme has not yet been thoroughly fleshed out and is still subject to regulatory approval.

Both Yankuang and Jinan-based Shandong Energy are under the control of the provincial State-Owned Assets Supervision and Administration Commission, and Yankuang holds an about 55 percent stake in Yanzhou Coal Mining, public information shows.

Yanzhou Coal Mining's stock [SHA:600188] was up 4.99 percent to CNY10.10 (USD1.44) in mid-afternoon to give it a total market cap of CNY39.36 billion (USD5.62 billion), as the Shanghai Composite Index rose by 0.53 percent, with the firm's Hong Kong-listed shares [HKG:1171] also rising 3.31 percent to HKD6.56 (85 US cents).

Of China's seven coal producers that each output over 100 million tons of coal annually last year, Yanzhou Coal Mining and Shandong Energy Group ranked a respective fifth and sixth at 166 million tons and 125 million tons. If the merger eventuates, the new firm's total output will overtake that of China National Coal Group and be second only to China Energy's 508 million tons.

Set up in 1999, Yankuang is mainly engaged in mine exploitation, coal chemistry and the logistics trade. It reported CNY280 billion in income, CNY12.5 billion in total profits and CNY327 billion in year-end total assets last year, public information shows. Shandong Energy, a company formed by merging six coal businesses in Shandong, logged CNY357.1 billion in operating revenues and CNY310.9 billion in total assets last year.

Considering excessive capacity, dispersed productivity and other problems that have long dogged China's coal industry, the national government has been advancing the merger and restructuring among upstream and downstream businesses in recent years. China Energy was established by a merger between Shenhua Group, formerly the largest coal producer in China, and power giant China Guodian in 2017.

Editor: Ben Armour