According to China Shenhua Energy Co, coal production this year will increase 14.8 percent to 258 million tons and sales will reach 350 million tons, up 19.6 percent year-on-year. [Photo / Agencies]

Coal giant to raise up to 120 billion yuan upon shareholder approval

SHANGHAI - China Shenhua Energy Co, the listed unit of the nation's biggest coal producer by market value, said on Monday that it will seek shareholders' approval to make a rights issue of up to 20 percent of its shares on the Chinese mainland and in Hong Kong.

Based on its share price on Friday, Shenhua has a market capitalization of about 600 billion yuan ($91.77 billion), which means that capital raised through 20-percent rights issue, if fully exercised, could top 120 billion yuan.

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In a filing to the Shanghai Stock Exchange on Monday, the company said that it will also seek shareholder approval for a 10 percent stock repurchase right, totaling about 60 billion yuan, during the upcoming annual shareholders' meeting.

Shenhua's A share in Shanghai gained 3.18 percent to 30.87 yuan a share on Monday after the announcement.

The announcement comes as the State-owned Shenhua sits on an ample stock of cash on the back of strong performance last year. Analysts say that getting approval doesn't necessarily mean Shenhua will exercise its right to use it.

Shenhua's net cash flow reached about 54 billion yuan by Dec 31, up 6.2 percent year-on-year, according to its annual financial statement released last month. Revenue jumped 25.3 percent to top 152 billion.

"Shenhua's not short of cash. It is more of a precautionary move in case of rainy days," said Xu Zhe, who rates Shenhua a "buy" at Southwest Securities.

Xu said that it is too early to predict if - and how many - Shenhua will issue additional shares this year, but it won't make a rights issue and a stock repurchase at the same time because it's "not understandable".

Wang Shi, who also rates Shenhua a "buy" at Northeast Securities, said that if Shenhua does raise capital on the stock market this year, it will probably be used to buy coal mines and build railway lines.

Shenhua has made plans to raise its capital expenditure by 25 percent this year to 36.2 billion yuan, 15.5 billion yuan of which will be invested in the coal-related business and 15.9 billion yuan will go to building transportation facilities.

Shenhua's Chairman Zhang Xiwu said last month in Hong Kong that coal production this year will increase 14.8 percent to 258 million tons and ales will reach 350 million tons, up 19.6 percent year-on-year.

Last month, a consortium formed by Shenhua and Mitsui & Co Ltd, a major Japanese trading company, was short-listed to develop the central-western section of the $300-billion Tavan Tolgoi coalfield in Mongolia. The portion is estimated to contain at least 1.2 billion metric tons of coal.

Shenhua will start construction for a 100-million-ton coal project in Australia in 2012, with operations starting in 2015.