Tuesday, December 04, 2007

More Whispers On Shenhua

Shenhua Energy, the world's second-largest coal company, could raise almost US$80 billion to spend buying mines, power plants and ports to feed China's growing demand for energy. The mining company is in preliminary talks to invest in Indonesia (Adaro, read below) and is studying targets in Australia and Mongolia, president Ling Wen said on Friday. Shenhua has been forced to move a lot faster in its M&A strategy thanks to BHP Billiton's audacious bid for Rio Tinto. The $US134 billion unsolicited takeover bid for Rio Tinto Group by BHP Billiton, the world's biggest mining company, may accelerate those plans. There are only so many decent sized mines left to acquire that would help make a difference to Shenhua over the longer term. After all, it IS the world's second largest coal company, and wants to at least stay there if not improve further.

"It's very important to use not only organic growth but also mergers and acquisitions to make our enterprise larger, better and more profitable," Mr Ling said in an interview in Beijing. "We have huge room to make some acquisitions."

China Shenhua would be able to finance takeovers because its parent, state-owned Shenhua Group, owns a 74%. China Shenhua would be able to liberate $US78.5 billion by selling new shares and diluting its parent's stake to just over 50 per cent. China, the largest energy consumer after the US, burns coal to generate almost 80 per cent of its power. The Government estimates energy demand will rise about 4 per cent annually to the equivalent of 2.7 billion tonnes of coal by 2010. China's gross domestic product grew 11.5 per cent in the third quarter.

The price of shares in China Shenhua, which ranks behind St Louis-based Peabody Energy in coal sales, have more than doubled this year, outpacing the 43 per cent advance in the benchmark Hang Seng Index. The parent's stake dropped from 81% after the company raised 66.6 billion yuan in a Shanghai share sale in October. The stock has fallen 7% since then.

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