Tue Dec 5, 2006 6:12 AM ET
By Kennix Chim
HONG KONG, Dec 5 (Reuters) - China's second-biggest coal group by revenue, China Coal Energy Co., expects coal prices to remain high, driven by strong domestic demand, the firm's chairman said on Tuesday.
China Coal is looking to raise up to US$1.7 billion in a Hong Kong initial public offering in order to raise funds for expansion in a country where coal accounted for 69.6 percent of energy consumption in 2005.
Industry production has strained to keep pace with voracious demand from a rapidly growing economy.
"China is the world's top coal producer and consumer, with the continuing growth in the domestic economy, coal prices will remain stable at a high level," Jing Tianliang, the company's chairman and executive director, told reporters via video while on the marketing roadshow for his firm's IPO.
China Coal, which kicks off the retail portion of its Hong Kong public offering on Wednesday, forecast its 2006 net profit would be at least 3.1 billion yuan (US$396 million), a 5.9 percent decrease, due in part to foreign exchange losses.
The company will begin trading on Dec. 19, under the stock symbol "1898" <1898.hk>.
China is the world's largest coal user, accounting for 36.9 percent of global consumption, according to BP Statistical Review 2006. The Chinese government estimates that domestic demand for coal will increase to 2.5 billion tonnes by 2010, from 2.14 billion tonnes in 2005.
"The key driver for the company should be volume growth and not pricing power," Citigroup wrote, predicting a decline in prices in 2008.
State-controlled China Coal is selling 3.25 billion shares, or 28.9 percent of its enlarged share capital, in a range of HK$3.20 to HK$4.05, or 11.5 times to 14.6 times forecast 2006 earnings.
By comparison, top Chinese coal producer Shenhua Energy Co. <1088.hk> trades at 15.6 times 2006 earnings, while Yanzhou Coal Mining Co. Ltd. <1171.hk> trades at 10.2 times.
Coal reserves in China are abundant but the mining sector is fragmented and notoriously unsafe. China ranks third in terms of proven coal reserves, following the United States and Russia.
China Coal's unit mining cost stood at 255.3 yuan per tonne in 2005, higher than its peers. Shenhua has a cost advantage because most of its mines are open-cut mines, meaning its unit cost was only 66.7 yuan per tonne in 2005, while Yanzhou's cost was 162.8 yuan per tonne.
Jing said the company will adopt cost control measures by increasing production without adding personnel.
China Coal plans to distribute 20 percent to 30 percent of its profit as dividends after its listing.
The deal is being sponsored by China International Capital Corp., Citigroup and Morgan Stanley
(For expanded IPO diary, please click
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