China Shenhua Energy Co, the nation's largest coal producer, plans to raise 66.6 billion yuan (US$8.9 billion) in its initial public offering in Shanghai to fund expansion, to be the biggest share sale this year.

 

Beijing-based Shenhua, listed in Hong Kong in 2005, will sell shares to mainland investors for the first time this year. The company will sell up to 1.8 billion A shares at 34.99-36.99 yuan per share, accounting for 9.05 percent of its enlarged capital, it said in a statement to the Hong Kong stock exchange today.

 

The listing at the Shanghai Stock Exchange is scheduled on October 9.

 

The price will be at a discount to Shenhua's share price in Hong Kong. The stock closed at HK$43.30 on September 21. Shares of the company have more than doubled this year, outpacing the 29 percent gain in the benchmark Hang Seng index.

 

The sale may exceed the US$7.7 billion China Construction Bank Corp raised from selling nine billion shares this month.

 

It will use the proceeds to expand mines, power production, railroads and harbors, and to fund acquisitions including coal mines from parent Shenhua Group Corp.

 

Shenhua will use 16.7 billion yuan of the proceeds to invest in 19 coal, power and transportation projects. It will allocate 16 billion yuan to enlarge working capital and use the rest for other projects and to buy coal and power assets from its parent.

 

The company will spend about 27 billion yuan by the end of 2009 to expand coal production, Chairman Chen Biting said last month. The company targets an annual coal production capacity of 200 million tons by the end of 2010 and aims to have a power output capacity of 20,000 megawatts, he said.

 

"The pace of asset injections will increase following the A-share listing, which we see supporting the H-share price," Donovan Huang, a Hong Kong-based analyst at Nomura International Ltd, said on September 20. He has a "buy" rating on the stock.

 

Shenhua Group has four coal mines with 60 million tons of coal output that will be injected into Shenhua, Huang said. That represents about 39 percent of Shenhua's annual output.

 

Shenhua's first-half profit surged 20 percent to 10.3 billion yuan because of increased energy demand in the world's largest consumer of coal. China uses the fuel to produce almost 80 percent of its electricity.

 

Coal sales at Shenhua climbed 21 percent to 97.8 million tons in the first six months of the year. Production rose 15 percent to 76.6 million tons while power generation jumped 56 percent to 36 million megawatt-hours, accounting for 29 percent of sales.

 

The sale would top that of VTB Group, Russia's second-biggest bank, which raised US$8 billion in May in the world's largest initial public offering this year.

 

China International Capital Corp, which is 34 percent owned by Morgan Stanley, and China Galaxy Securities Co are managing the sale.

 

(Chinadaily.com.cn September 24, 2007)