China National Coal Group, the country's number-two coal producer, has picked China International Capital Corp, Citigroup and Morgan Stanley to arrange its planned US$1 billion overseas initial public offering, sources familiar with the matter said yesterday.

"The restructuring process will take at least eight to nine months to complete," a source said.

China Coal's listing in Hong Kong is expected to come by the end of this year, at the earliest, following Shenhua Group, China's largest coal mining firm.

Shenhua's US$1.5 billion IPO, handled by CICC, Merrill Lynch and Deutsche Bank, is expected to hit the road in the second quarter.

China Coal's production increased 15 per cent to 51 million tons in 2004, compared with Yanzhou Coal's 40 million tons in 2004 and Shenhua Group's 102 million tons in 2003.

The firm had total assets of 41.5 billion yuan (US$5.01 billion) and net assets of 10.8 billion yuan (US$1.3 billion) at the end of 2003 and coal reserves of 11.9 billion tons, according to its website.

China's strong economic growth has boosted coal demand enormously. Demand in China jumped 13.8 per cent to 1.863 billion tons in 2004.

Yanzhou Coal, the only overseas-listed Chinese coal firm, has seen its share price surge by over 40 per cent in the past 12 months.

Coal prices have increased by an average of 8-10 per cent, or 30-50 yuan (US$3.6-6.0) per ton to 350-450 yuan (US$42-54) per ton, since September 2004, according to China Coal Market Network.

Credit Suisse First Boston (CSFB) expects demand to reach 2.009 billion tons in 2005 and 2.139 billion tons in 2006. The investment bank expects coal prices to edge up slightly over the course of 2005.

China's coal industry is highly fragmented and inefficient, with the top 10 coal mining groups making up only 15 per cent of the country's total production capacity. More coal producers are expected to tap the Hong Kong stock market to strengthen their financial positions as Beijing plans to form six to eight large coal producing groups.

(China Daily March 3, 2005)