Yitai Coal to buy up parent's mines
Inner Mongolia Yitai Coal, which is preparing for an initial public offering of up to US$1.5 billion, plans to acquire the bulk of the remaining mining assets of its parent, Yitai Group, after the listing.
The deal is expected to be worth 8.4 billion yuan (HK$10.25 billion).
Yitai Coal, a former state-owned enterprise privatised by its employees, prepared for a Hong Kong listing in 2010, but regulatory approvals took much longer than expected. It has issued and listed foreign currency-denominated B shares in Shanghai since 1997. Yitai Group owns 60 per cent of Yitai Coal.
Its preliminary listing prospectus filed with the Hong Kong stock exchange said Yitai Coal, the biggest local producer in the nation's biggest coal-mining region, had seven operating coal mines with total proved and probable marketable reserves of 580.4 million tonnes at the end of last year. Their combined annual output was 35.2 million tonnes.
It also has two mines under development, with total marketable reserves of 567 million tonnes. They will start production next year, with a projected combined output of 7.6 million tonnes in 2014.
Yitai Coal has budgeted capital expenditure of 3.24 billion yuan for this year, of which 1.64 billion yuan is earmarked for expanding coal logistics facilities, 1.07 billion yuan for coal mine development and 540 million yuan for coal-to-chemicals projects.
It forecast net profit of at least 3.24 billion yuan in this year's first half. Profit grew 8.9 per cent last year to 5.75 billion yuan on higher coal prices as output fell 2.5 per cent.
The firm said it planned to acquire five mines from its parent to reduce potential competition. Timing of the acquisition is uncertain, pending approval from the Inner Mongolia Department of Land and Resources.
If the acquisition had been completed at the start of last year, it would have increased Yitai Coal's marketable reserves by 7.7 per cent to 1.24 billion tonnes, output by 36 per cent to 47.8 million tonnes and profit by 43.1 per cent to 8.23 billion yuan last year. But its profit margin would have been cut to 30.5 per cent from 34.8 per cent, since the operations to be acquired include a greater contribution from the low-margin coal-trading business.
Sanford Bernstein analyst Michael Parker expects Yitai Coal to be valued at a relatively low 'mid-to-high single-digit' price-to-earnings multiple due to the depressed stock market sentiment.
Yitai Coal's B shares last traded at 7.9 times this year's forecast earnings.
The number of years since Yitai Coal first applied to the China Securities Regulatory Commission to issue H shares