China Shenhua Energy Company

Yongchuang Coal plans US$1.5b IPO

PUBLISHED : Monday, 02 April, 2007, 12:00am
UPDATED : Friday, 08 May, 2015, 9:51am

Yongchuang Coal, a Sichuan-based mining company, plans to raise up to US$1.5 billion from an initial public offering in Hong Kong later this year, people familiar with the company said.

The company has not yet awarded a mandate to investment banks. Yongchuang Coal could not be reached for comment.

China's coal companies are raising funds as the government forces the industry to consolidate with the intention of building three or four giants and 10 other or so medium-sized companies.

China Coal Energy, the mainland's second-largest coal producer by sales, raised US$1.9 billion from an initial public offering in December. Its shares have doubled since then and trade at 23 times expected earnings.

The value of shares in China Shenhua Energy Company, the mainland's largest coal producer, has risen 11/2 times since their mid-2005 offering.

Shenhua has the world's largest coal reserves after US-based Peabody Energy.

'Shenhua and China Coal are companies with the highest profile and operate large-scale and high-quality assets,' said Andrew Driscoll, an analyst at CLSA Asia Pacific. 'They've paved the way for medium-sized coal producers to go public and that's supported by a bullish outlook for coal prices driven by domestic demand in China.'

The spot price of 496 yuan a tonne for Datang premium blend thermal coal at the country's largest coal terminal of Qinghuangdao is 7 per cent higher than a tonne at this time last year. Contract prices are up 8 per cent.

The Yongchuang share sale would mark the third jumbo offering from the coal industry this year.

Shanxi Coking Coal Group plans to raise at least US$1 billion in a Hong Kong public offering later this year. Coking coal is used in iron smelting.

Yongcheng Coal & Electric Group, a diversified industrial conglomerate based in Henan province, plans to raise up to US$1.5 billion from a Hong Kong share sale this year. Yongcheng's primary business is coal mining but it also has interests in thermal energy, cement and hotel subsidiaries.

Heilongjiang Longmay Coal Mine Group, a state-owned mining company in the northeastern province, had to scrap plans to raise about US$1 billion from an initial public offering due to safety issues at its mines, market sources said.

Six miners were killed after the company's Taoshan coal mine in Qitaihe collapsed in September last year. In 2005, an explosion at its Dongfeng coal mine in the same city killed 171 people.

China is the world's biggest producer and consumer of coal. It relies on coal for two-thirds of its energy needs. Mainland power demand could rise 11 per cent to 3.1 billion megawatt hours this year and rise another 10 per cent to 3.4 billion megawatt hours next year, according to analysts at Deutsche Bank.

Coal production is tipped to rise 8.6 per cent to 2.52 billion tonnes this year, according to mainland government projections.