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Zhengzhou Coal Mining eyes US$300m second listing in Hong Kong

Shanghai-listed Zhengzhou Coal Mining to sell up to US$350m in shares

PUBLISHED : Wednesday, 21 November, 2012, 12:00am
UPDATED : Wednesday, 21 November, 2012, 1:56am

Zhengzhou Coal Mining Machinery Group, the mainland's largest coal-mining equipment maker, plans to raise about US$300 million to US$350 million through an initial public offering in Hong Kong later this month, three people with direct knowledge of the transaction said yesterday.

The Henan-based company, which is listed in Shanghai, may offer the shares in Hong Kong at about a 15 per cent discount to its Shanghai shares. The Hong Kong shares are likely to be within an indicative range of HK$10.38 to HK$12.28, or a price-earnings ratio of 6.5 to 7.7 times next year's earnings.

The size of the offering is about 221 million shares - equivalent to 15 per cent of the company's enlarged equity capital.

In Shanghai, the company's share price dropped 0.65 per cent to 9.18 yuan (HK$11.40) yesterday. It is down 26 per cent from the start of this year, probably on investor worries about the country's slowing electricity output and the industrywide overcapacity in the coal sector.

In a bid to prevent a failed deal launch, four so-called cornerstone investors have promised to subscribe to a combined US$120 million worth of the new shares. They include two Hong Kong-listed firms, Inner Mongolia Yitai Coal and Huadian Fuxin Energy, which will take up to US$30 million of shares each.

The company aims to start its investor roadshow as soon as today, and the final pricing will be set on November 28. The shares will debut in Hong Kong on December 5, according to the people familiar with the deal.

About two-thirds of the listing proceeds will be used to fund overseas acquisitions, namely in the advanced technology arena for drill designs.

"Companies in Germany and the United States are the best acquisition targets for a Chinese coal mining machinery maker," said one of the people familiar with the deal.

Zhengzhou Coal had planned to seek up to US$600 million in a listing in September, but delayed its offer because of tepid demand.

The company, which has been listed in Shanghai since 2010, expects to benefit from an anticipated consolidation of the domestic coal mining industry, which is highly fragmented, inefficient and has a poor safety and pollution record.

Apart from the domestic market, Zhengzhou Coal also plans to sell hydraulic drills to emerging markets such as India, Russia and Turkey.

Separately, China's largest non-life insurer PICC plans to raise up to US$4 billion in Hong Kong. Much of the share offer has already been taken up by cornerstone investors such as US insurer AIG and China Life Insurance, with each pledging to buy up to US$500 million of shares, according to a banker familiar with the transaction.

According to Bloomberg, China Longyuan Power, the mainland's largest producer of electricity generated from wind power, also plans to seek US$500 million in Hong Kong through a secondary share offering.

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