Shenhua to pay bulk of 2004 profit to parent
Listing candidate China Shenhua Energy will pay most of last year's profit of almost nine billion yuan as dividends to its parent before its forthcoming initial public offering, according to one of the offer's underwriters.
As the nation's largest coal producer markets its US$2.5 billion to US$3 billion global share offer, Deutsche Bank estimated in a report to fund managers that new shareholders could expect a dividend payout ratio of about 35 per cent.
It is understood that most of the listing proceeds will fund the company's capacity expansion investment, estimated at 35 billion yuan, and some will be used to repay bank loans.
At the end of last year, net debt amounted to about 53 billion yuan, or 138 per cent of its shareholder equity.
This is projected to fall to 122 per cent by the end of the year, excluding the impact of the shares offer.
After paying a 7.5 billion yuan dividend to parent Shenhua Group from last year's net profit of 8.93 billion yuan, China Shenhua is also expected to pay an unspecified dividend next year for profits earned between the start of this year and the listing expected by the middle of next month.
Net profit is projected to rise 74.4 per cent to 15.58 billion yuan this year.
Shenhua's debt burden is expected to remain relatively high as it has been aggressively expanding its coal and power businesses.
Its coal output is forecast to rise 15 per cent to 117 million tonnes this year and by a further 13 per cent to 132.5 million tonnes next year.
Yanzhou Coal Mining, the only Hong Kong-listed mainland coal mining firm, is in a net cash position, but its expansion has been slower than Shenhua's in the past few years. Its payout ratio has ranged between 24 per cent and 34 per cent over the past five years.
For every 1 per cent change in coal price, China Shenhua's operating profit will adjust by 2 per cent, Deutsche Bank estimated.
The bank expected that coal prices will decline 1 per cent next year after peaking this year.
'[In the] longer term, we believe coal prices will weaken further,' it said, but added that export coal prices will be supported by strong demand and transportation infrastructure bottlenecks.
'The impact of [export] supply restrictions in China and Australia on the international seaborne market is being reinforced by falling production in Europe and the United States,' Deutsche Bank said.
Shenhua is China's largest coal seller, exporting 26.6 million tonnes last year. It is the world's fourth-largest coal producer and holder of the second-largest reserves by a company.
It plans to double output by 2010 from last year, with 95 million tonnes of annual capacity in new mine development or expansions planned.
The report said China Shenhua's per tonne coal production cost was only half that of Yanzhou, but its transport cost was double that of Yanzhou, which is in the coastal province of Shandong.
