Huadian Group Transfers Heilongjiang Electric Power Assets

China Huadian Corporation recently entrusted the property market to package and transfer the shares of its three power companies in Heilongjiang. After the transfer is completed, Huadian Group will no longer hold shares in the three companies. According to the restrictions of the announcement on the transferee and the commitment of Huadian Group, Huadian Energy may become the purchaser of the asset package.

Higher asset appreciation rate

The assets planned to be transferred by Huadian Group include equity of Heilongjiang Fulaerji Power Generation Co., Ltd., 15.28% equity of Harbin Thermal Power Co., Ltd. and 1.6% equity of Heilongjiang Huadian Qiqihar Thermal Power Co., Ltd., with listed prices of 98,245,700, 176,729,800 and 1,126.30 respectively. Ten thousand yuan, totaling 1.17 billion yuan.

Heilongjiang Fulaerji is a wholly-owned subsidiary of Huadian Group, which mainly deals with thermal power generation and heating. In 2009, the company realized operating income of 30.45 million yuan and net profit of 19.087 million yuan. According to an assessment, the company's book value as of the end of the first quarter of this year total assets of 1.138 billion yuan, the assessment value of 1.634 billion yuan, of which the net asset book value of 450 million yuan, the assessment value of 950 million yuan, the assessment value of nearly 1.1 times.

Qiqihar Thermal Power is mainly engaged in the development, investment, construction and operation of thermal power projects. Harbin Thermal Power is mainly engaged in power generation, heating, power technical consulting services and development. For these two thermoelectric enterprises, although Huadian Group is a minority shareholder, the value-added rate of the transfer is not low. According to the listing announcement, the net book value of Harbin Thermal Power is 420 million yuan, the assessed value is 1.15 billion yuan, and the value-added is 1.74 times; the net asset value of Qiqihar Thermal Power is 550 million yuan, the assessed value is 704 million yuan, and the added value is 28.5% .

The data also showed that in the first half of this year, Fulaerke had a loss of 7.61 million yuan; Qiqihar thermal power profit was 14.61 million yuan; Harbin thermal power loss was 3985 million yuan.

Do not rule out Huadian Energy taking over

According to the listed announcement information, the controlling shareholders of the two thermoelectric enterprises are Huadian Energy, a company listed under the Huadian Group, except for Fullair, which is wholly-owned by Huadian Group.

According to public information, by fulfilling the share reform commitment of Huadian Group, Huadian Energy realized the company’s controlling shareholding in the Qiqihar Thermal Power Company’s capital increase and shareholding in the process of capital increase, and currently holds 88.9% of its shares; In the case of capital increase and share expansion, part of the capital increase rights of Huadian Group was taken over by Huadian Energy, making it a controlling shareholder of Harbin Thermal Power and now holding 38.04% of the equity.

Although the announcement shows that the original shareholders of the two thermal power companies have given up the priority of buying shares, but because the three assets are packaged and sold, the two thermoelectric companies other than the Fulaerji Company are already subsidiaries of Huadian Energy. It is also reasonable for energy to strengthen control over equity transfer. The qualification of the Huadian Group for the transferee allowed the industry to believe that Huadian Energy's acquisition of the company is very likely.

According to the transferor’s request, the intended transferee shall be a state-owned, state-controlled or state-owned listed company that is registered in China and continues to operate legally, and the main business of power production shall have a registered capital of not less than RMB 1 billion, as of 2009. On December 31, total assets amounted to no less than 10 billion yuan. And the project does not accept joint assignments, nor can it use licensing or trust placards. In addition, the intending transferee also needs to undertake a written commitment to accept the target company's employee placement program, maintain the stability of the workforce, and take responsibility for the company's safe production from the commencement of the “Equity Transaction Contract”.

Huadian Energy has a registered capital of 1.9 billion yuan. As of December 31, 2009, its total assets amounted to 18.63 billion yuan. It is mainly engaged in power generation, power plant overhaul, power technical service and consultation, and fully meets the conditions for transfer. At the same time, Huadian Group made a special commitment during Huadian Energy's share reform: to position Huadian Energy as the power development entity and capital operation platform of the Huadian Group in the Northeast region. The acquisition of Hualong Group’s Heilongjiang Assets by Huadian Energy officially performed its share reform commitment.

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