China Shenhua plans to raise $6.7 billion to fill vacuum in domestic coal mining infrastructure

Shenhua Energy May Raise $6.7 Billion in Share Sale (Update6)
By Ying Lou

July 3 (Bloomberg) -- China Shenhua Energy Co. is planning the world's biggest share sale by a coal mining company to raise as much as $6.7 billion 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 yesterday. The Beijing-based company will spend the money on coal, power and transport operations and on domestic and overseas acquisitions.

The sale may set a record for Shanghai and would rival one planned by PetroChina Co. as the world's second-largest this year. China, the biggest energy user after the U.S., is pushing its companies listed in Hong Kong to sell shares in the mainland to cool a market that's quadrupled in value since the start of 2006.

``A share sale will give domestic investors more choices to participate and benefit from China's unquenched thirst for energy,'' said Lei Wang, co-portfolio manager of 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 in the world's fastest- growing major economy, where the fuel generates 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 boosts power demand.

Shares at Record
Shenhua shares rose 6.6 percent to a record HK$29.10 at the 4 p.m. market close in Hong Kong. The stock is the sixth-best performer in the past three months among the 20 members of the Bloomberg World Coal Index.

The 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. It would eclipse the $6.1 billion Industrial & Commercial Bank of China Ltd. raised in Shanghai last year.

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

Shareholder Meeting
Shenhua's Chinese stock, known as A shares, would be worth 50.9 billion yuan, based on today's closing price in Hong Kong. That would exceed the company's HK$25.49 billion ($3.3 billion) initial public offering in Hong Kong in 2005, a record for a coal producer. Shenhua, the world's largest coal company by market value, gave no price range or timing for the sale, saying shareholders will meet to vote on it ``soon.'' The plan must also be approved by the state.

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 HK$7.30 in June 2005 and now trades at 22 times estimated earnings.

A cut in coal exports from China, the largest producer and consumer of the fuel, has benefited producers including PT Adaro Indonesia, the Southeast Asian nation's second-largest coal supplier. 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.

Parent's Assets
In a separate statement yesterday, Shenhua said it agreed to pay 3.33 billion yuan ($438 million) to acquire Shenhua Group Shenfu Dongsheng Coal Co. and Shenhua Shendong Power Co. from parent Shenhua Group Corp.

``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. Rival China Energy reported a profit of 3.17 billion yuan for 2006 and Yanzhou Coal Mining Co. earned 2.37 billion yuan.

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

Coal Price
The price of coal for immediate delivery, excluding shipping costs, climbed 2.98 yuan a metric ton to a record 563.38 yuan for the week ended June 29, according to the McCloskey Group. The price of coal at Qinhuangdao has risen almost threefold in the past five years.
The nation's coal output rose 7.1 percent in the first half of this year, the China Securities Journal said today.

China's 2007 coal production may rise 8.6 percent to 2.52 billion tons and demand may gain 8.5 percent to 2.51 billion tons, the China Economic Information Network said Nov. 4. The network is a unit of the State Information Center, part of the National Development and Reform Commission.