(Bloomberg)
Updated: 2007-07-04 09:03

HONG KONG: China Shenhua Energy is planning the world's biggest share sale by a coal mining company, hoping to raise as much as $6.3 billion to expand pits and delivery networks as demand for the fuel surges.

The nation's largest coal producer plans to sell as many as 1.8 billion yuan-denominated shares in Shanghai, Shenhua said in a statement to Hong Kong's stock exchange on Monday. The Beijing-based company will spend the money on coal, power and transport operations and on domestic and overseas acquisitions.

The sale would rival one planned by PetroChina, up to now the world's second-largest this year. China, the world's biggest energy user after the United States, is pushing Hong Kong-listed Chinese companies to sell shares in the mainland to cool a market that has quadrupled in value since the start of last year.

"A share sale will give domestic investors more choices to participate and benefit from China's unquenched thirst for energy," said Lei Wang, a co-manager of a portfolio worth more than $13 billion at Thornburg International Value Fund in Santa Fe, New Mexico. "I remain positive on China's coal industry, which might see multiple years of uptrend, because of the ability to pass on costs and a favorable demand-supply balance."

China became a net importer of coal for the first time this year because of rising energy needs. It has the world's fastest-growing major economy, one where coal is used to generate 78 percent of electricity. Coal prices at Qinhuangdao, China's largest port for the fuel, rose to a record last week as increased use of air conditioners in the summer season raised demand for power.

Shenhua's share sale would be the second-largest in the world this year after an $8 billion sale by VTB Group, Russia's second-biggest bank, in May, according to data compiled by Bloomberg.

The coal producer's plan brings to about $20 billion the value of China share sales announced or completed by Hong Kong-listed companies within the past three weeks.

China Construction Bank said on June 15 that it plans to sell $5.5 billion in shares in Shanghai, while China Cosco Holdings raised 15 billion yuan last week selling stock. PetroChina said June 20 that it will raise as much as $6 billion selling shares to mainland investors for the first time.

Shenhua's Chinese stock, known as A shares, would be worth 49.1 billion Hong Kong dollars, or $6.3 billion, based on the closing price in Hong Kong on June 29. That would make it the nation's largest share sale this year and exceed the company's 25.49 billion dollar initial public offering in Hong Kong in 2005, a record for a coal producer. Shenhua gave no price range or timing for the sale, saying that shareholders will meet to vote on it "soon."

The company's chairman, Chen Biting, wants to gain from an equity boom that has driven shares to 42 times earnings in China, the most expensive in the Asia-Pacific region. Shenhua stock has gained almost fourfold since making their debut at 7.30 dollars in June 2005 and now trades at 22 times estimated earnings.

The shares rose as much as 8.4 percent to 29.30 dollars, their biggest intraday gain since June 18, and traded at 28.85 Tuesday. The stock has jumped 53 percent in the past three months, making it the sixth-best performer among the 20 members of the Bloomberg World Coal Index.

A cut in coal exports from China has benefited producers including Adaro Indonesia, the southeast Asian nation's second-largest supplier of the fuel. Adaro plans to raise as much as $600 million in what would be Indonesia's biggest initial public offering, said three people with knowledge of the plan.

In a separate statement issued Monday, Shenhua said that it had agreed to pay 3.33 billion yuan, or $438 million, to acquire Shenhua Group Shenfu Dongsheng Coal and Shenhua Shendong Power from its parent, Shenhua Group.

"This acquisition is very positive to Shenhua, which needs to both rejuvenate its growth profile among peers and offset investors' concerns about cost margins," Thornburg's Wang said.

Shenhua's net income rose 12 percent to 17.5 billion yuan last year. Its rival, China Energy, reported a profit of 3.17 billion yuan for 2006 and Yanzhou Coal Mining earned 2.37 billion yuan.

Shenhua, which has coal reserves second only to Peabody Energy, plans to spend 25 billion yuan annually in the next three years to expand coal mining and power generating capacity.

The price of coal for immediate delivery, excluding shipping costs, climbed 2.98 yuan per metric ton to a record 563.38 yuan for the week to last Friday, according to the McCloskey Group. The price of coal at Qinhuangdao has risen almost threefold in the past five years.

China's coal output rose 7.1 percent in the first half of this year, The China Securities Journal said Tuesday.

The country's 2007 coal production may rise 8.6 percent to 2.52 billion metric tons and demand may gain 8.5 percent to 2.51 billion tons, the China Economic Information Network said in November. The network is a unit of the State Information Center, part of the National Development and Reform Commission.