Relevant departments will support M&A from industrial, credit, and other aspects; since 2016, the coal industry has shown a good recovery trend, but industrial concentration is not high. On January 5, the "Opinions on Further Promoting Mergers, Reorganizations, Transformation, and Upgrading of Coal Enterprises" (hereinafter referred to as the "Opinions"), released by the National Development and Reform Commission (NDRC) and 11 other ministries, proposed a strong push for mergers and reorganizations in the coal industry. Experts noted that this is the first time relevant departments have issued a dedicated document on coal industry M&A. Industry insiders expect that, driven by the "Opinions," the coal industry, which has emerged from its loss-making predicament thanks to capacity reduction policies, will usher in new development opportunities.
First Dedicated Document for Coal Industry Restructuring
The issuance of the "Opinions" signifies that after many years, the peak of mergers and reorganizations in the coal industry is once again being injected with strong policy-level momentum. Bi Yueyi, a coal analyst at Jinlianchuang, told a reporter from The Beijing News that relevant departments have always encouraged mergers and reorganizations in the coal industry, but this is the first time a dedicated document has been issued to promote industry change.
The "Opinions" propose supporting mergers and acquisitions among qualified coal enterprises, or with companies in related industrial chains, to expand the average scale of coal enterprises and optimize the industrial structure. By the end of 2020, the goal is to establish several super-large coal enterprise groups, each with an annual output of over 100 million tons, possessing strong international competitiveness.
Qiu Hanxuan, an analyst at Chuancai Securities, points out that currently, there are 9 coal enterprises in the country with an output exceeding 100 million tons, and 15 with an output exceeding 50 million tons. This is still some distance from the planned target, and with only three years remaining until the end of 2020, it is anticipated that the pace of mergers and acquisitions in the coal industry will accelerate.
Since 2012, the coal industry ended its "golden decade," and by 2015, it had almost fallen into a situation of industry-wide losses. According to statistics from the China National Coal Association, in 2015, the total profit of 90 large coal enterprises nationwide was only 5.13 billion yuan, a year-on-year decrease of approximately 91%. These 90 large coal enterprises accounted for 69.4% of the national coal output, and the overall industry's loss rate reached 95%.
In 2016, a policy storm of capacity reduction swept through the steel and coal industries, rapidly revitalizing the market. Within two years, there were even multiple instances of coal supply falling short of demand in some regions. Recently, data from the National Bureau of Statistics showed that from January to November 2017, the operating revenue of industrial enterprises above a designated size nationwide was 108 trillion yuan, a year-on-year increase of 11.4%. Among them, the coal mining and washing industry achieved operating revenue of 2355.39 billion yuan, a year-on-year increase of 29.4%, ranking first in terms of growth among all major industries.
"In the past two years, the coal market has recovered significantly, and enterprises' willingness for mergers and acquisitions has increased. Mergers and acquisitions are, to some extent, inherent to capacity reduction, helping low-efficiency coal enterprises to exit the market," said Bi Yueyi.
New "Catalog System" Policy Vigorously Promotes Coal Industry Consolidation
This document concerning mergers and acquisitions in the coal industry for the first time proposed a new policy initiative: the "catalog system." The "Opinions" state that for enterprises listed as key targets for mergers and acquisitions, a directory management system will be implemented. A directory of primary M&A entities will be established for coal enterprises and large thermal power enterprises that possess economic, technological, and managerial advantages. Enterprises on this primary M&A entities directory are encouraged to acquire enterprises identified as key M&A targets. The "Opinions" point out that coal enterprises lacking long-term development conditions and listed as key M&A targets will be subject to three policies: prudent credit policies, prudent associated industry policies, and enhanced prevention of bond risks.
Taking credit policy as an example, banking financial institutions are required to strengthen risk monitoring and identification, effectively evaluate enterprise development prospects, financial status, and repayment sources, and prudently provide credit support to coal enterprises that lack long-term development conditions and are listed as key M&A targets. Regarding the catalog system, Bi Yueyi stated that this demonstrates the state is not merely providing "verbal" support and encouragement, but has also introduced practical industrial, credit, and other policies to genuinely advance mergers and acquisitions.
Since 2016, the coal industry has started to recover, but mergers and acquisitions remain relatively few, and industry concentration is low. According to statistics from the China National Coal Association, from January to November 2017, 90 large coal enterprises produced 2.25 billion tons of raw coal, with the top 10 enterprises accounting for 1.35 billion tons, or 60.0% of the total output from large enterprises. In comparison, from January to November 2015, two years prior, the top 10 coal enterprises produced 1.371 billion tons of raw coal, accounting for 59.6% of the total output from large enterprises. This indicates that the increase in coal industry concentration over the past two years has been very small.
It is worth noting that the role of government departments cannot be overlooked in the process of advancing the catalog system. The "Opinions" state that coal industry regulatory departments, in conjunction with relevant departments and units, are responsible for formulating management methods for the directory of key M&A target enterprises and primary M&A entities, and for carrying out tasks such as directory identification and public disclosure.
