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Yongcheng Coal plans to raise up to US$1.5b from IPO

Nevin Nie

Industrial group seeks HK listing next year but has not awarded mandate for deal

Yongcheng Coal and Electric Group, a Henan province-based industrial conglomerate, plans to raise US$1 billion to US$1.5 billion from an initial public offering in Hong Kong next year, market sources said.

A mandate for the deal had not yet been awarded, the sources said.

Yongcheng's primary business is coal mining - it produced 7.94 million tonnes of coal in the first eight months of the year - but it also runs thermal energy, cement and hotel subsidiaries.

The company earned 1.12 billion yuan in net profit for the first eight months of the year on 13.5 billion yuan in revenue, according to the company's website.

A spokesperson for the company said she had no information of the pending deal.

Shares of China Coal Energy, which began trading yesterday after raising US$1.7 billion from an IPO, rose 12.59 per cent to close at HK$4.56. The shares closed at 16.4 times expected earnings for this year.

Shares of China Shenhua Energy, the mainland's largest coal-mining company, have doubled this year and closed at HK$16.98 yesterday. They trade at 18.7 times expected 2006 earnings.

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

'If you really want to be in the game, you have to take the opportunity to buy and merge with companies,' said UOB Kay Hian analyst Foo Choy Peng. 'You need money to do that.'

China is the world's biggest producer and consumer of coal, relying on it for two-thirds of the country's energy needs. Mainland power demand could rise 11 per cent to 3.1 billion megawatt-hours next year and a further 10 per cent to 3.4 billion megawatt-hours in 2008, according to Deutsche Bank analysts.

The bank expects coal prices to remain flat next year and fall as much as 3 per cent in 2008 on increasing coal production and better infrastructure.

Yongcheng plans in March to open a US$186 million alumina refinery with a capacity of 400,000 tonnes a year. It signed an agreement with the government of Kaifeng, Henan, in October to provide about one billion yuan of financing to bail out Kaifeng Iron Tower Rubber Group, a car parts supplier.