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IPO

IPO

Henan Jinma Energy is turning to natural gas for growth

PUBLISHED : Monday, 25 September, 2017, 7:21pm
UPDATED : Monday, 25 September, 2017, 7:21pm

Henan Jinma Energy plans to produce more natural gas as a by-product of its coke-production operations as part of broader efforts by the authorities to tackle chronic air pollution in northern China.

The company, which is about to list its shares in Hong Kong, is taking advantage of state policy supporting the change of energy used for home heating and industrial energy generation from coal to natural gas. The pollution from burning coal produces a thick winter smog in the north of the country, which is a major health hazard.

“Leveraging on our successful track record and past experience in extending our involvement in [coking chemical production], we intend to further extend the value chain to produce downstream energy products, mainly liquefied natural gas (LNG),” Jinma said in its listing prospectus.

“We plan to capitalise on the market demand for clean energy driven by the [mainland] government’s environmental policies.”

Mainland China’s natural gas consumption grew 13 per cent year on year in the first seven months of the year, double last year’s growth of 6.6 per cent. The increase was helped by Beijing’s push for local governments to implement policies to drive “coal to gas fuel conversion” for rural residential heating, including subsidies to fund the conversion of heating facilities.

Besides coke, the key ingredient in steel smelting, the coking industry produces by-products including coal gas, benzene, coal tar and refined chemicals like asphalt, which is used to pave roads.

The coal gas can be further processed to produce hydrogen and LNG.

Jinma will start offering its shares to the public in Hong Kong tomorrow, as part of a global offer of 133.3 million shares priced at HK$2.11 to HK$3.39 each, to raise up to HK$452 million.

Assuming the offer price is set at the mid-point of the indicative range, some 40 per cent of the proceeds have been earmarked for natural gas production facilities and 10 per cent for a gas liquefaction plant.

Another 40 per cent will be used to upgrade facilities at two of its coking furnaces to allow them to recycle waste heat for power generation. The remaining 10 per cent will bolster working capital.

The company began building LNG production facilities in the first quarter of this year. They are expected to cost 641.5 million yuan and come on stream in the first quarter of next year.

Jinma recorded a net profit of 166.8 million yuan in the first four months of 2017.

Coke contributed 221.7 million yuan of gross profit on a profit margin of 19.3 per cent, while energy products generated 26.9 million yuan with a margin of 29.2 per cent.

For the whole of last year, net profit came to 265.9 million yuan, up from 24.2 million yuan in 2015, while turnover grew 47.3 per cent to 3.3 billion yuan.

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