Shenhua Merges Two Headquarters, Aiming Group Listing     

Shenhua Group Corporation Limited (Shenhua) has initiated an internal consolidation at the end of November 2009, which could pave the way for a group listing of China's largest coal company.
   The current organization structure model of Shenhua was formed at the end of 2004, when the company established China Shenhua Energy Company Limited (Shenhua Energy, SH: 601088, HK: 01088) as a listing vehicle of some of its assets. That created one headquarters for Shenhua and another for the listed Shenhua Energy.
   Li Rongrong, director of the State-owned Assets Supervision and Administration Commission, said for many companies, one key reason behind the high product inventory and loss amid the financial crisis is the too complicated organizational structure which leads to slow response to the market. State-owned companies should review their existing structure and work flow to improve their decision-making procedures, their information delivery and working efficiency, he said.
   The merger process of the two Shenhua headquarters was started in July 2009 when the legal relationship between Shenhua and Shenhua Energy was clarified to avoid related transactions and same-business competition between them. A final plan was rolled out in mid-November 2009.
   Shenhua will adopt a management method based on business line after the merger, with some new departments such as coal business, power unit and coal-to-oil and coal chemicals unit. Such a structure will bring professional management to coal, power and coal-to-oil and coal chemicals, all Shenhua's key business units.
   The consolidation plan also proposes an independent management mode for the company's production, transport and sales business. The newly-set direct production center and sales management department, according to company's managers, will bring professional management and optimize allocation among these sectors.
   A Shenhua executive also said the merger of the two headquarters is ready for Shenhua as a group listing on the structure level. The merger will strengthen the understanding, communication, collaboration and resource-sharing between the two. That will help nurture new business and the non-listed part of the company.
   The listed Shenhua Energy's assets accounted for 65% of the Shenhua's total as of the end of 2008. Its coal production, revenue and profit accounted for 67%, 74% and 96% respectively of the group. On the other hand, Shenhua's unlisted assets had reached RMB150 billion.
   Reportedly, Shenhua Energy will first acquire coal assets it does not own from Shenhua and then the power assets. At last, Shenhua Energy will have the priority right for acquiring the coal-to-oil and coal chemicals businesses from Shenhua.
   In the first half of 2009, Shenhua restructured its Shendong Coal Branch, Shendong Coal Co., Wanli Coal Co., and Jinfeng Coal Co. into the new Shenhua Shendong Coal Group.
   Something more important is that the National Development and Reform Commission has approved in principle Shenhua's plan to build coal reserve bases of up to 20 million - 30 million tons in major coal gap areas such as southern China, eastern China, central China and Beijing, Tianjin areas.
   Shenhua plans to increase total assets to RMB900 billion over five years. It also expects sales could reach RMB300 billion and profit could top RMB100 billion in five years.