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UPDATE 2-China's Shenhua, Guodian in power asset merger talks -sources
June 5, 2017 / 4:51 AM / 3 months ago

UPDATE 2-China's Shenhua, Guodian in power asset merger talks -sources

* Firms suspend shares citing unresolved "important" matter

* Shenhua Group to take over GD Power -source

* Merger talks at preliminary stage -source

* Shenhua Group, China Guodian merger to be tabled later -source (Adds analyst comment, context)

By Meng Meng and Adam Jourdan

BEIJING/SHANGHAI, June 5 (Reuters) - Coal giant Shenhua Group Corp Ltd and top-five state power producer China Guodian Corp are in talks to merge some assets, sources told Reuters on Monday, as part of a broader shake-up of China's debt-ridden state-owned sector.

Several of the power firms' listed units suspended trading in their shares on Monday citing a planned "significant event", fanning market speculation over a merger. The shares of other listed units that continued trading rose sharply.

The talks come as the government seeks to streamline state-owned enterprises (SOEs), including those in the energy sector, by creating huge, globally competitive conglomerates. It has merged 15 SOEs since 2015 and currently manages 103 - a number that could eventually fall to about 40, state media reported.

In the latest merger talks, a person with direct knowledge of the matter said China's largest coal miner, Shenhua Group, would take over Guodian unit GD Power Development Co Ltd .

"After merging Guodian's GD Power into Shenhua, Shenhua will consider acquiring coal-fired power assets from the remaining top power firms," said the person, who was not authorised to speak with media on the matter and so declined to be identified.

A second person with knowledge of the matter said merger talks were at a preliminary stage, and that the option of completely merging the two parents was likely to be tabled later.

Shenhua Group, its listed unit China Shenhua Energy Co Ltd , China Guodian and GD Power could not be immediately reached for comment.

"We think this merger is very likely to occur," NSBO Research said in a note to clients, referring to a merger of some form between Shenhua Group and China Guodian. Any merger would be positive for their listed units, NSBO Research said.

OVER-CAPACITY

China Guodian is one of five state power producers formed in 2002 after the restructuring of China's state-owned power sector monopoly, along with China Huadian Corp, State Power Investment Corp, China Huaneng Group and China Datang Corp.

In March, the chairman of China's State-owned Assets Supervision and Administration Commission (SASAC) said SOE restructuring would focus on the steel, coal, heavy equipment and coal-fired power sectors this year to tackle over-capacity.

With smog-plagued China moving toward cleaner fuel, a merger of Shenhua Group with a major state power provider such as China Guodian - also a leading hydropower and renewables developer - could ease its dependence on coal.

Other listed units of China Guodian - Guodian Changyuan Electric Power Co Ltd, Yantai LongYuan Power Technology Co Ltd and Ningxia Younglight Chemicals Co Ltd - also suspended share trading on Monday.

The listed firms said in statements they had been informed by their parent companies about a significant event that involved major uncertainties and required regulatory approvals.

Trading continued in the Hong Kong-listed shares of China Shenhua Energy as well as Guodian Technology & Environment Group Corp Ltd. The prices of both rose sharply in morning trading. (Reporting by Meng Meng, Adam Jourdan and David Stanway; Editing by Stephen Coates and Christopher Cushing)

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