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China's Datang sells coal-to-gas, coal-to-chemical operations

Datang Power, one of China's largest independent power producers, will divest its coal-to-gas and coal-to-chemical divisions following multiple problems that have risked the company's attractiveness to investors.

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In a filing to the Hong Kong Stock Exchange late Monday, Datang said it will sell the operations to China Reform Corp., an asset management company backed by the ministry-level State-owned Assets Supervision and Administration Commission.

The assets include stakes in the Keqi and Fuxin coal-to-gas projects in Inner Mongolia and Liaoning provinces, respectively, as well as the Duolun coal-based methanol to propylene or MTP complex, also in Inner Mongolia.

Datang said the sale, which it described as a "reorganization," would allow it to focus its capital and technology resources on its principal business, which is coal-fired power generation. In addition, the deal would optimize its business structure, improve its corporate strategy and increase its core competitiveness.

The company had started its chemicals business to leverage its lignite coal reserves and abundant water resources in eastern Inner Mongolia, as well as to heed the government's push toward low-carbon chemical products.

However, operations have been risky. Barely a month after starting up, production at the Keqi project, which is China's first large-scale coal-to-gas development, was suspended early this year for about three months due to corrosion of the gasifiers.

The plan was to produce 1 billion cu m/year from the project this year and then gradually scaling up to the designed capacity of 4 billion cu m/year.

Datang had signed a 30-year gas sales agreement with state-owned PetroChina for the gas in December last year, with the gas transported from Keqi to Miyun in Beijing. From Miyun, the gas will be sent through PetroChina's 110-km (68-mile) Gubeikou-Gaoliying pipeline to northern Beijing.

Datang has a 51% stake in the Keqi project, with gas company Beijing Gas Group holding 33% and two other minority partners holding the remaining 16%.

Datang was also developing the 4 billion cu m/year Fuxin coal-to-gas project, although there has been no target date for commissioning since the problems at Keqi.

The Duolun project, which was officially commissioned at the end of last year, has also been plagued by mechanical problems at the MTP units, resulting in a planned major overhaul at the facility next month.

In a research note Tuesday, Nomura Research said numerous mishaps including various delays and repairs at the projects have "continuously tested ... investors' patience."

The sale of the assets will free up cash, stop losses and remove the "biggest overhang on the stock," the bank added.

Datang said the transaction price for the assets will be negotiated and determined following the results of an audit and evaluation.

--Song Yen Ling,
--Edited by Meghan Gordon,