China goes nuclear with latest state-brokered power deal

China National Nuclear Corp (CNNC), China’s No. 2 nuclear power producer, will take over the country’s top nuclear power plant builder to create a company worth almost $100 billion, the latest state-orchestrated marriage in the nation’s vast power sector.

The deal has been in works for almost a year as Beijing has pushed to streamline its bloated state-owned enterprise (SOE) sector, tackle rising corporate debt and make businesses more profitable through mergers, reductions in excess capacity and the closure of “zombie” firms.

Approval for the tie-up between CNNC and China Nuclear Engineering & Construction (CNEC) was announced by the State-Owned Assets Supervision and Administration Commission (SASAC) on Wednesday in a one-line statement posted on its website.

In a filing later on Wednesday, CNEC’s listed unit said its controlling shareholder will be CNNC after the deal.

The combined company would have assets worth more than 620 billion yuan ($99 billion) and a workforce of almost 150,000, according to Reuters’ calculations based on data on the firms’ websites and in company filings.

Beijing wants to overhaul its nuclear sector in order to create globally competitive firms and reduce overcapacity across its broader power market.

The nuclear industry is struggling with project delays and a slowdown in approvals for new domestic projects.

By creating a unified home-brand series of reactors, and combining firms, China will be better positioned to bid for and finance overseas projects, experts say.

Both companies have built nuclear plants overseas, including in Pakistan, and developing Chinese nuclear technology abroad is a key goal of China’s Belt and Road initiative.

“(The) merger … will give the new company vast financial firepower to take on the significant capital costs involved in developing new nuclear reactors – both domestically and abroad,” said Georgina Hayden, head of power and renewables at BMI Research.

Last year, the government oversaw the marriage of China’s top coal miner Shenhua Group Corp Ltd with China Guodian Group Corp, among the country’s top five state power producers, to create the world’s largest power utility.

This deal will reduce the number of enterprises administered by the central government to 97, compared with 117 in 2012.

“We expect this trend (of consolidation) to continue as Beijing continues to streamline its SOEs,” said Hayden.

SASAC’s clearance comes about 10 months after the companies’ listed entities flagged a deal involving their parent companies was in the works.

It is a re-marriage of sorts for the two companies after they were separated in 1999 under a previous round of SOE reform.

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