The analyst community is split on Yanzhou Coal's decision, announced late last month, to buy the railway assets of its parent. The logic behind the 1.2 billion yuan (about HK$1.12 billion) purchase seems sound. The 184-kilometre track connects Yanzhou's mines with its largest client and, as owner of the track and cars, the temptation of connected transactions between Yanzhou and its parent is likely to be tempered by the deal. The firm will also benefit as China's rigid tariff system is begging for deregulation. ABN Amro analyst Adrian Fung wrote to clients that while the average coal transport fee was 20 yuan per tonne 'any adjustment in the future will likely be on the upside which will in turn benefit Yanzhou'. If the deal seems to make good sense, why is it leaving a bad taste in many analysts' mouths? 'It's a good company with strong fundamentals but I have some reservations about the recent acquisition of the railway because their reasons are not very convincing and management didn't convince us during the presentation,' Sun Hung Kai Research's Odelia Leung said. Ms Leung noted the railway had been valued at a forward price-earnings ratio of 12.6 times which, she said, compared unfavourably with Hong Kong-listed Guangshen Railway which traded at about 11 times. Other analysts have baulked at the idea of comparing the two - Yanzhou's will be dedicated to coal shipments between mines and clients while Guangshen carries passengers and freight - but Ms Leung would rather the firm spent its money more wisely. 'I'd rather management focused on the core business rather than focusing on the sidelines. In China, the government is closing down small inefficient coal mines and it could find more ways to enhance its earnings,' she said, before adding 'and I haven't seen a coal company successful in operating a railway'. Speaking anonymously, some analysts were more candid about the deal - opinions which invariably returned to the role of Yanzhou's heavily indebted parent. For example, one analyst had few problems with the company acquiring a railway network but did question the way in which it was presented. 'People were asking about the financial position of the mother company as some wonder if [the deal is] just to benefit the parent,' the analyst said. 'It seems management was reluctant to give that information,' she said, adding that they might not have wanted to reveal it. 'From the beginning, people wondered if the parent wants to cash in and this is my suspicion.' Another analyst said management's lack of disclosure had set alarm bells ringing. 'On a personality basis, [management] is good but they don't have Western accounting skills so they didn't know how to package this deal to investors or institutional investors. 'They didn't choose the right investment bank,' the analyst said. Whatever the analysts make of the deal, the market appears to have voted already - with its feet. Yanzhou slumped 7.62 per cent to HK$2.425 on October 31, after the announcement, and closed on Friday at the same level. The deal will be put to minority shareholders at a December 17 extraordinary general meeting. Joe Zhang and Jenny Wong of UBS Warburg told clients the deal could well be voted down, according to their discussions with fund managers.