Sembcorp warns of S$212M impairment in 1H21 earnings

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Sembcorp Industries warned Monday it expected to report a S$212 million impairment in its first half earnings for its 49 percent-owned joint venture Chongqing Songzao Sembcorp Electric Power due to coal supply issues.

Despite the impairment, first half profit was expected to remain positive when results are reported on 6 August, Sembcorp Industries said in a filing to SGX.

Chongqing Songzao had been operating its 1,320MW mine-mouth coal-fired power plant in Chongqing, China, with coal obtained from joint venture partner Chongqing Energy Investment Group (CQE)’s coal mines, Sembcorp said. However, after a government directive to re-evaluate coal mines in the region, CQE closed all its mines there and the plant turned to other sources for coal, the filing said.

Due to “significantly higher coal costs” amid low inventory in China, Chongqing Songzao posted a second-quarter loss, and is expected to report a net loss in the first half and full year, Sembcorp said.

“A review of the carrying value of Chongqing Songzao was undertaken, and arising from the assessment, the carrying value of the group’s entire equity interest was fully impaired,” Sembcorp said.

“Although initially there was expectation of government support, and some support was received, it is now evident that on a long-term basis, the availability and form of government support are both uncertain and insufficient. In the longer term, the asset is also expected to face competitive pressure from low carbon power sources,” the company said.