Yitai Coal to tap market for US$1.5b

Inner Mongolia Yitai Coal, one of the biggest coal producers on the mainland, plans to raise up to US$1.5 billion from an initial public offering in Hong Kong this year, making it the country's first B-share company to issue H shares.

The company said on Thursday it had received approval from the China Securities Regulatory Commission, but has yet to get clearance from the Hong Kong stock exchange.

It first applied for permission from the CSRC in May 2010, and filed applications with the Hong Kong exchange in June 2010, and in January and August last year, renewing the application every six months when it expired.

Yitai Coal plans to issue up to 297 million H shares, including an oversubscription quota of 38.8 million shares, to raise between US$1 billion and US$1.5 billion.

BNP Paribas, mainland investment bank China International Capital Corp, BOC International and UBS are involved in the share offering.

Yitai Coal already lists B shares on the mainland, after it was spun off by state-owned Inner Mongolia Yitai Group on the Shanghai stock market to raise 520 million yuan (HK$640 million).

B shares are issued by mainland companies and traded on the Shanghai and Shenzhen stock exchanges in foreign currencies such as US or Hong Kong dollars.

They were limited to foreign investors until 2001, when the CSRC allowed mainland investors to trade B shares in the secondary market.

The B-share markets are normally inactive because of the many restrictions. There are only 54 B-share companies on the Shanghai exchange, and fewer than 60 listed on the Shenzhen exchange.

H shares are issued by mainland-incorporated companies listed in Hong Kong. They are denominated in Hong Kong dollars.

Yitai Coal recorded net profit of 5.5 billion yuan for last year, compared with 5.1 billion yuan in the previous year. Revenue rose to 16.84 billion yuan from14.08 billion yuan. Profit margin fell to 32.6 per cent from 35.8 per cent.

Its major shareholders include many of the Hong Kong branches of mainland securities firms, including Guotai Junan Securities, China Merchants Securities and First Shanghai Securities.

Brokers are sceptical about the demand for Yitai Coal shares, with investors still in 'shock' over a spate of auditor resignations from mainland companies listed in Hong Kong, including children's apparel company Boshiwa International, high-end fashion retailer Ports Design and Daiqing Dairy.

The market is also expecting another report from short-seller Muddy Waters, whose reports sparked a slump last year in the share price of US-listed Sino Forest. Muddy Waters published a report this week alleging that there was a 'fraud school' on the mainland run by lawyers, auditors and consultants to teach companies how to fake accounts.

Yitai Coal shares closed barely changed at US$5.697 yesterday.