National Coal shuns strategic investors

China's leading exporter says no to foreign firms ahead of IPO as unit keen on keeping board seat

China National Coal has turned away some of the world's largest coal companies from making strategic investments in the company ahead of its US$1 billion initial public offering this year in Hong Kong, according to market sources.

Interested investors had included Peabody Coal, the largest coal miner in the United States, and Arch Coal, the country's No2 producer. Some of Europe's largest producers had also expressed interest, sources said.

ChinaCoal, a unit of the mainland's largest exporter of coal, was reluctant to give up a seat on the board to such an investor, sources familiar with the deal said. The companies could still acquire new shares in the IPO, they said.

Anglo American bought US$150 million worth of shares from China Shenhua Energy when it raised US$2.95 billion last year. That amounted to a 5 per cent stake in Shenhua, the mainland's largest coal producer.

Shenhua's shares have risen 75 per cent since the flotation in June and closed at HK$13.12 yesterday. They are up 54 per cent this year.

Yanzhou Coal Mining, a unit of the mainland's fourth-largest coal producer, has seen its shares jump 7 per cent this year to close at HK$5.33 yesterday.

The Hang Seng Index has gained 14 per cent by comparison.

Overseas investors are piling into mainland IPOs, expecting the country's fast economic growth to continue. They also hope to gain access to its huge domestic markets through a strategic relationship.

Mainland companies that have sold stakes to overseas firms, on the other hand, hope such a move will settle the nerves of investors who may have doubts about the country's legal and political systems and their effect on business conditions.

ChinaCoal would go before the listing committee hearing at the Hong Kong stock exchange early to the middle of next month and then begin pre-marketing the sale, sources said.

The company, which has eight billion yuan of share capital, plans to sell 25 per cent of its enlarged share capital.

The Beijing-based company scrapped an IPO last year, saying it needed more time to prepare.

Morgan Stanley, Citigroup and China International Capital Corp are arranging the sale.

Parent firm China National Coal Group produced a record 72 million tonnes of coal last year and plans to boost output to 150 million tonnes by 2010. The company made four billion yuan in profit last year as sales rose 29 per cent to 50 billion yuan, the State-owned Assets Supervision and Administration Commission said.

The mainland's demand for coal this year may total 2.25 billion tonnes, while supply will come in at 2.26 billion tonnes, according to the National Development and Reform Commission.

The country's rapidly growing economy depends on coal to supply two-thirds of its energy needs. The mainland is the second-largest energy consumer behind the United States.