China National Coal Group, the nation's second-largest coal group by revenue, will fold its 62 per cent stake in Shanghai-listed Shanghai Datun Energy Resources into a subsidiary that is seeking a Hong Kong listing. The state-owned coal group said it will inject the Datun Energy stake into China National Coal Shareholding, according to a Datun Energy statement submitted to the Shanghai Stock Exchange yesterday. The deal, which has won China Securities Regulatory Commission approval, will not involve any cash as it is an internal transfer, Datun Energy said. Sources said that China National Coal Shareholding is seeking a Hong Kong initial public offering that will raise US$1 billion to US$1.5 billion. The company hopes to list the shares by the end of this year. 'The move shows that the coal group wants to put most of its assets into its subsidiary, which will be listed in Hong Kong soon,' said an analyst with a Beijing-based brokerage. China National Coal Group, with assets of 45.9 billion yuan at the end of last year, aims to put most of the assets into the subsidiary after shunning some of the world's largest coal companies including the United States' top two producers, Peabody Coal and Arch Coal, and some of Europe's largest producers. Net profit for the mainland coal group surged 121 per cent to 3.1 billion yuan last year, while sales rose to 50.7 billion yuan from 3.9 billion yuan a year earlier. The Hong Kong listing of the group's subsidiary will cover more types of businesses, including coke production and equipment manufacturing, compared with the more coal-mining nature of its peers such as Hong Kong-listed China Shenhua Energy Rising output and falling prices are crimping profits at China's coal firms despite continued increases in sales. Average coal prices quoted by state-owned coal companies fell by 1.3 per cent to 302.1 yuan per tonne in the first half with those based in the Yangtze River Delta suffering declines of 5.3 per cent, according to a Guohai Securities report issued last month. In the first six months, the 13 listed coal firms made total revenues of 25.7 billion yuan, up 11 per cent from a year ago, while net profit dropped by 8 per cent to 3.9 billion yuan, Guohai Securities said. Net profit margin decreased to 15.2 per cent from 18.2 per cent a year earlier. Datun Energy, which has assets worth 5.2 billion yuan, mainly produces coking coal. The company said its production base in the Yangtze River area will help it avoid competition with China National Coal Group's production facilities that are located in other regions. Datun Energy's net profit rose by 11 per cent to 405 million yuan last year, while revenue increased by 50 per cent to 3.7 billion yuan.