Perennial Energy Holdings Announces Major Transaction: Proposed Capital Increase in Target Company

Key Highlights for Investors

• Major Transaction: Perennial Energy Holdings Limited (“the Company”, stock code: 2798) has announced a major transaction involving a proposed capital increase in Guizhou Huaneng Jiayuan Coal Co., Ltd (the “Target Company”).
• Shareholder Approval: The transaction has been approved by written shareholders’ approval from Spring Snow, the controlling shareholder holding approximately 54% of the issued share capital of the Company.
• Transaction Structure: The Company will increase its capital in the Target Company, which will result in the Group’s equity interest in the Xiejiahegou Business being diluted from 100% to 51%, constituting a deemed disposal of a 49% interest in the Xiejiahegou Business.
• Valuation: The Target Company was valued at RMB 1.2 billion as at 30 November 2025 by an independent valuer through the income approach. The Xiejiahegou Business was valued at RMB 1.0 billion.
• Financial Position: As of 30 November 2025, the Target Group had net current liabilities of RMB 120.6 million, net liabilities of RMB 123.8 million, and accumulated losses of RMB 234.3 million. However, the directors believe the Group will have sufficient working capital with financial support from Perennial Energy Holdings.
• Profit Forecast and Sensitivity: The profit forecast used in the valuation is based on discounted future estimated cash flows, constituting a “profit forecast” under Rule 14.61 of the Listing Rules. Sensitivity analysis shows material impact on fair value from changes in discount rate (+/-10% movement can change value by up to ±16.5%).
• No Shareholder Approval Meeting Needed: As there are no qualified opinions from the reporting accountants and no shareholder is required to abstain from voting, written approval suffices in lieu of a general meeting.

Detailed Transaction Overview

• Transaction Purpose: The capital increase and consolidation aim to create synergies, enhance operational efficiency, and strengthen the asset base for better financing capability. The transaction includes the transfer of mining rights, property, and assets related to Xiejiahegou Coal Mine to the Target Company.
• Conditions Precedent:
  • Jiutai Bangda (the investor in the Target Company) must complete satisfactory due diligence.
  • The Target Company must obtain compliance certificates or non-penalty confirmations from authorities for any historical non-compliance.
  • All regulatory, shareholder, and listing approvals must be secured.
• Risk Factors:
  • The investment is in a coal mining project in the PRC, which comes with operational, regulatory, technical, and market risks, including commodity price volatility and potential regulatory changes.
  • The Target Company is currently in a net liability position, though this is expected to be addressed post-transaction with ongoing financial support.
• Financials and Valuation Details:
  • As of 30 November 2025, the unaudited asset value of the Target Group was approximately RMB 315 million.
  • The Target Company has not generated revenue in recent years and has posted consistent annual losses (e.g., RMB 9.7 million loss for 2024).
  • The independent valuer (Win Bailey Valuation and Advisory Limited) used the income approach, discounting future cash flows, and confirmed a valuation of RMB 1.2 billion for the Target Company.
  • The valuation and profit forecasts do not represent a forecast of future profits but are for fair market value assessment.
  • The reporting accountants (Deloitte) have issued an unqualified opinion on the historical financial information and confirmed the arithmetical accuracy of the profit forecast calculations.
• Commitments and Indemnities:
  • Original Shareholders have undertaken to indemnify Jiutai Bangda and/or the Target Company for any losses arising from historical defects or non-compliance prior to completion.
  • Any pre-completion indebtedness not included in the valuation will be settled by the Original Shareholders.
• Use of Proceeds and Working Capital:
  • Upon completion, the Company intends to finance the Target Company’s operations by cash generated from the Target Company and internal resources of the Group.
  • The Directors are satisfied that the Enlarged Group will have sufficient working capital for at least 12 months from the date of the circular.
• Market Sensitivities:
  • Sensitivity analyses in the valuation report highlight the significant impact of discount rate changes on valuations, which may affect investor perception and share price volatility.
  • The Group’s performance remains sensitive to fluctuations in clean coal market prices, as noted in a recent profit warning regarding the six months ended 30 June 2025.
• Regulatory and Compliance:
  • The transaction is not subject to the filing requirements under the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and related CSRC guidelines, according to PRC legal advice.

Potential Price-Sensitive Information for Shareholders

• Major Transaction and Deemed Disposal: The Company is undertaking a significant transaction that alters its asset base and earnings potential, which may have a direct effect on share value if the market perceives greater value or risk in the consolidated coal mining assets.
• Profitability Outlook: The Target Company has not generated revenue and is loss-making, though the valuation is based on future cash flow forecasts. The success of the investment depends on the realization of these forecasts and the effective management of operational and market risks.
• Financial Support Required: The Target Group is currently in a net liability position and reliant on Perennial Energy’s support, which may be a concern for risk-averse investors.
• Substantial Shareholder Support: The controlling shareholder’s written approval (Spring Snow) for the transaction signals strong internal backing but means that minority shareholders had no vote (though this is in accordance with the Listing Rules).
• Valuation Sensitivity and Market Risks: Considerable sensitivity to discount rates and market conditions may result in significant revaluation of the assets and potential share price volatility if assumptions change.
• Regulatory and Technical Risks: The transaction is subject to complex regulatory, technical, and environmental risks inherent in coal mining in China, as detailed in the Competent Person’s Report and risk assessments. Any adverse developments could impact asset values and share prices.
• Profit Warning: The Company has issued a profit warning regarding the first half of 2025, mainly due to clean coal price declines and operational challenges. While these are cited as short-term, they may influence near-term market sentiment and trading.

Conclusion

The proposed capital increase and consolidation of coal mining assets represent a major strategic transaction for Perennial Energy Holdings. The deal is designed to create operational synergies, improve financing capability, and potentially unlock greater value from the Group’s coal mining assets. However, it is accompanied by notable risks—including financial support for a currently loss-making target, high sensitivity to market and discount rate assumptions, regulatory uncertainty, and ongoing exposure to commodity price volatility.

Investors should closely monitor execution of the transaction, realization of anticipated synergies, and any further updates from management regarding operations, market conditions, or regulatory developments. The transaction, given its scale and potential impact on the Group’s financials and asset base, is likely to be price sensitive and could lead to share price movement depending on market perception and subsequent performance.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should consult their own professional advisors and consider the full text of official circulars and disclosures before making investment decisions. The writer accepts no responsibility for any loss arising from reliance on the information contained herein.

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