Yanzhou Coal's 640m yuan loan loss covered

Yanzhou Coal Mining, which has failed to collect a one-month loan of 640 million yuan from an obscure Shandong-based company, says the loss will be covered by the guarantor of the deal.

Company secretary Chen Guangshui said the non-tradable shares of Huaxia Bank held by Lianda Group, which have been frozen by a mainland court, would cover the principal, interest and related finance costs of the loan.

'I don't think we will suffer a loss from the deal,' said Mr Chen yesterday.

The Hong Kong-listed coal producer last month lent the money to Shandong Xinjia Industrial at an interest rate of 7 per cent per annum through Bank of China's Shandong branch. Lianda was the guarantor of the deal.

To secure the debt repayment, the Shandong High People's Court has frozen 289 million non-tradable shares of Huaxia Bank held by Lianda.

Mr Chen said Yanzhou was in discussions about the loan repayment arrangements with Lianda and a third-party investor, who may take up the Huaxia shares, but no timetable had been set. 'We will be repaid in cash,' he said.

It is common practice for mainland firms to lend money to other corporates in the hope of locking in higher rates of interest but it is fraught with risk.

Mr Chen acknowledged the negative impact and said the company would be more cautious in future.

The company, one of the biggest coal producers in China, reported a net profit of 1.22 billion yuan in the first half of last year, up 65.9 per cent year on year.

Yanzhou Coal's stock finished 2.23 per cent weaker at $10.95 yesterday.