China Creating World’s Largest Power Company

The government of Chinese President Xi Jinping approved the merger of Shenhua Group Corp., the country’s top coal miner, with China Guodian Corp., among its largest power generators, the State-owned Assets Supervision and Administration Commission said on Monday.

With assets of 1.8 trillion yuan ($271 billion), the new entity will be the world’s second-biggest company by revenue and largest by installed capacity, according to Bloomberg New Energy Finance, Bloomberg reported.

The Shenhua-Guodian tieup may be the first of a handful of mergers in China’s power industry as top policymakers try to cut industrial overcapacity and the number of state-owned enterprises. Monday’s announcement concludes months of speculation about the combination, first reported by Bloomberg in June.        

“People have been waiting for the other shoe to drop,” said Tian Miao, a Beijing-based senior analyst at Sun Hung Kai Financial Ltd. “This confirms the direction of state-owned enterprise reform, with companies in the same industry merging to reduce redundant investment and improve efficiency.”

The new company, expected to be called National Energy Investment Corp., will have installed capacity of more than 225 gigawatts, topping Electricite de France SA and Enel SpA, according to Frank Yu, an analyst at Wood Mackenzie Ltd.

EDF, as the French generator is known, had net installed capacity of 137.5 GW last year, according to a company presentation. Italy’s Enel had total installed capacity of 83 GW as of June 30, it said.

Xi’s government is also seeking to lower the country’s reliance on coal power and increase the use natural gas, as well as wind, solar, hydropower and nuclear. The generation capacity of the merged company will be 23% renewables, according to Bloomberg.

The government may also seek a way to bundle nuclear power generators into the mega-merger mix, according to Wood Mackenzie’s Yu.