Viewpoint Since the termination of Nanguo Land’s upward merging of Power Construction Real Estate in September last year, Power China has launched another plan to exchange assets with its parent company, Power Construction Group.
In December last year, Power China first implemented a debt-to-equity swap of RMB 16.3 billion for its wholly-owned subsidiary Tianjin Haifu Real Estate Development Co., Ltd. as an asset platform for the real estate business.
After the preparations are completed, on January 6, 2022, the asset swap finally landed.
According to the announcement, the equity of 18 subsidiaries held by Power Construction Group will be placed in Power China, and Power China’s real estate sector, namely China Power Construction Real Estate, Beijing Feiyue Linkong Technology Industry Development Co., Ltd. and Tianjin Hai 100% equity of Fu Real Estate Development Co., Ltd. will be sold to Power Construction Group. The transaction is planned to be carried out by way of non-disclosure agreement transfer.
It is reported that the above-mentioned assets placement and placement assessment totaled 24.719 billion yuan and 24.653 billion yuan respectively, and the difference was made up with cash.
China Power Construction stated that the controlling shareholder will inject high-quality assets that compete with the company into the company, which will help reduce the competition between the company and the controlling shareholder and enhance the company’s independence.
At the same time, the purchase of 18 high-quality power grid auxiliary business assets under the Power Construction Group will help further optimize the company’s assets and improve the company’s industrial structure. The overall profitability of the purchased assets is higher than that of the purchased assets, which will help increase the company’s net assets. Yield and earnings per share, improve the company’s profitability and asset quality.
As stated in the announcement, this asset swap is a performance contract to avoid competition in the industry.
China Power Construction has a number of main businesses, including project contracting and survey and design, power investment and operation, real estate development, equipment manufacturing and leasing, etc., and development in multiple fields. The parent company Power Construction Group’s own business also covers the fields of energy and power, water conservancy and environmental infrastructure, and real estate, resulting in business overlap.
In 2014, Power Construction Group promised to inject power grid auxiliary companies into Power China to avoid competition in the industry.
According to the explanation and commitment made by the Power Construction Group in 2014: “For power grid auxiliary enterprises with good business prospects, clear asset ownership, good performance of normative work, and standardized resolution of historical problems, since August 30, 2014 Within 8 years from the date of this day, after China Power Construction has performed the corresponding board of directors or shareholders’ meeting procedures in accordance with applicable laws and regulations and its articles of association, it will be injected into China Power Construction; other power grid auxiliary companies other than these companies, Power Construction Group will automatically From August 30, 2014, within 8 years in accordance with the law, take appropriate measures such as shutting down and transferring.”
If the asset replacement is completed, China Power Construction will basically divest its real estate business, China Power Construction will no longer involve in real estate development business, and subsequent refinancing restrictions can also be eased. The Power Construction Group directly controls another real estate listing platform, Nanguo Real Estate. Compared with before, the real estate sector and energy sector businesses look clearer.
Data source: Viewpoint index collation
However, there are still three companies that have not yet been able to inject, and Power Construction Group therefore changed its commitment on January 5. According to the announcement, the Power Construction Group has entrusted three companies that currently do not have the conditions to inject, namely, China Power Construction Group Shandong Electric Power Construction Co., Ltd., Shanghai Electric Power Construction Co., Ltd., and Shandong Electric Power Construction Third Engineering Co., Ltd., to China Power Construction.
Competing in the same industry seems to be more likely to occur for a large-scale central enterprise. The same companies as China Power Construction on the list of the first batch of 16 state-owned enterprises that are mainly engaged in real estate business as determined by the State Council have also encountered more typical problems of horizontal competition.
In terms of real estate business, in the past, COFCO also had business overlaps. Since then, the business has been split through internal asset transactions, with Joy City Holdings as a development business platform and Joy City Real Estate as a commercial real estate operator. Similar examples include the merger of Gezhouba with a share swap of China Energy Construction in August last year.
For China Power Construction, the divestment of the real estate sector business has been slightly weakened in the previous financial report.
According to the 2021 mid-year report, PowerChina’s real estate business achieved revenue of 5.22 billion yuan, compared with 7.69 billion yuan in the same period last year, down 32% year-on-year. From the perspective of the gross profit margin of each main business, the gross profit margin of real estate development was only 11.4%, a decrease of 8.14 points compared with the same period last year.
In contrast, the power investment and operation business has a gross profit margin of 43.8%, although it is also 5.32 points lower than the same period last year.
Electricity, a high-margin business, also carries an advantage. The General Department of the National Energy Administration issued in the middle of last year on the solicitation of the “Pumped Storage Mid- and Long-term Development Plan (2021-2035)”. share price.
According to the document, my country’s installed capacity of pumped storage will increase to 300 million kilowatts by 2035. If calculated according to the installation target proposed in the document, this plan will increase the scale of investment by about 1.8 trillion yuan.
It is reported that the two pumped-storage power stations with the largest installed capacity in China, Huizhou Pumped-storage Power Station and Guangzhou Pumped-storage Power Station, have been constructed by PowerChina and its subsidiaries. At the same time, in 2020, China Power Construction also signed two new pumped storage power stations in Zhirui, Inner Mongolia and Yixian, Hebei, with a total price of 4.1 billion yuan.
In the current real estate industry situation, China Power Construction seems to have laid down a burden, and the benefits of hydropower energy business are gradually emerging.
