SDIC Huajing Power Holdings Co said yesterday that it plans to buy 100 percent of a sister power company for about 7 billion yuan through a share placement, to strengthen profitability and expand assets.

A SDIC Huajing Power facility in Xuzhou, Jiangsu province. [China Daily]

The arrangement calls for SDIC Huajing Power to issue 825 million A shares to its parent company, State Development & Investment Corporation (SDIC) in exchange for another State Development subsidiary SDIC Electric Power Co.

The shares will be priced at 8.49 yuan, or its average stock price in the 20 trading days before it was suspended last December, the Shanghai-listed company said in a stock exchange filing yesterday.

The long-anticipated move will increase SDIC Huajing Power's capacity by 86 percent and add 5.85 million kilowatt to boost total power output to 12.64 million kilowatt, the company said in the statement.

Among the 5.85 million kilowatt installed power generating capacity, 4.65 million, or 79 percent, is hydropower capacity, it said.

The company's shares, which were suspended from trading since December, touched the 10 percent daily limit in Shanghai yesterday to close at 10.04 yuan.

After the acquisition, the proportion of installed hydropower capacity at SDIC Huajing Power Holding will amount to 41.25 percent, a move that analysts say will help the company improve its profitability as it will reduce its exposure to volatile coal prices.

"The injection of hydropower assets is a big boon to the company as it can cut the proportion of the coal-fired power generating capacity," said Peng Quangang, an electricity analyst at China Merchants Securities.

The volatile coal prices, Peng said, has been negatively impacting profits of coal-fired power plants in recent years.

Many of China's major coal-fired power firms suffered huge losses last year as a result of rising coal prices and falling electricity demand.

The asset injection will also expand SDIC Huajing Power's business coverage, from seven provinces to nine, the company said.

SDIC Electric Power Co, with a registered capital of 3 billion yuan, is a fully owned subsidiary of SDIC.

SDIC Electric realized 10 billion operating revenue and 432 million net profit last year. Its assets amounted to 55.5 billion yuan by the end of last year.

The asset buyout plan, which needs the approval of shareholders and relevant regulatory bodies, is also seen as part of SDIC's efforts to streamline its operations.

Established in 1995, SDIC is the largest State-owned investment holding company in the country, with business spread across power, coal mining, shipping, chemicals and financial sectors.

The investment company, which has another listed arm in addition to SDIC Huajing Power, has long planned to inject similar and related assets under its roof into the two listed companies. Besides the restructuring of the power assets, it is also working on a plan to put its coal mining assets into Shanghai-listed SDIC Xinji Energy Co.

SDIC reported a US$730 million net profit last year and an operating revenue of US$6.2 billion. Its total assets reached US$25.7 billion last year.

(China Daily March 5, 2009)