Shenhua Energy, the Chinese mainland's largest coal producer, is today set to launch the largest initial public offering (IPO) in Hong Kong since December 2003 when China Life Insurance Company Limited raised US$3.4 billion through its IPO.

Shenhua, the world's second largest coal producer, will float its H shares (Hong Kong Dollar shares listed in Hong Kong by Chinese mainland companies) on the Hong Kong Stock Exchange with the aim of raising HK$28.34 billion (US$3.63 billion).

The price range for the IPO is set between HK$7.25 (93 US cents) and HK$9.25 (US$1.18) per share.

Ninety-five percent of the shares will be offered internationally with the remaining 5 percent being offered for subscription in Hong Kong.

The subscription offer ends on June 7 with the trading debut set for June 15.

Anglo-American plc has a pre-offering agreement with Shenhua to purchase US$150 million worth of H shares.

Six other corporate investors were approached for the purchase of US$500 million worth of H shares at the offer price.

The total number of H shares to be purchased by Anglo-American plc and other corporate investors represents just 3.46 percent of the company's total issue.

According to market sources, the global offering is already over-subscribed with twice as many requests for shares as there are shares available.

Kenny Tang, research manager at Tung Tai Securities, predicted that the Shenhua offering could be over-subscribed by as much as 40 to 50 times.

The company had a net profit of 8.9 billion yuan (US$1.07 billion) in 2004 with net profits for 2005 projected to grow by 58 percent to 14.1 billion yuan (US$1.70 billion).

But the market is skeptical as to whether that high rate of growth can be sustained in the face of the central government's decision to lower tax rebates for coal exports by 3 percent.

Executive Director and Chairman Chen Biting quelled the market's worries, stressing that the impact of lower rebates is limited.

"The tax rebate was lowered when coal prices increased so the company is still profitable." Chen said. "Coal exports only accounted for 20 percent of the company's total coal sales last year."

The market is also concerned that heavy fixed investments, amounting to 45.8 billion yuan (US$5.52 billion) over the next three years, could put strong financial pressure on the company as the offering will only generate a maximum HK$28.34 billion.

Chief Financial Officer and Executive Vice President of Shenhua Ling Wen assured investors that new investments would yield significant returns for shareholders.

The IPO is being managed by China International Capital Corp, Deutsche Bank and Merrill Lynch Far East.

(China Daily June 2, 2005)