Northeast-based Longmei Mining (Group) Co Ltd has chosen South Korean steel giant Posco and Japan-based trading company Itochu Corporation as the strategic investors for its planned Hong Kong IPO (initial public offering) in the first half of next year.

"We have already inked initial agreements with the two companies," a senior company official from Longmei, who refused to be named, told China Daily yesterday.

The Heilongjiang-based coal-mining group aims to raise more than HK$2 billion (US$256 million) in a Hong Kong IPO in the first half of 2006, the official confirmed to China Daily.

The company has picked CITIC Capital, the adviser to the firm's restructuring last year, as the IPO sponsor, people close to the deal disclosed.

Its listing plan has been delayed from the original plan, which was set for the end of the this year, mainly because Longmei has not been able to reach a consensus with its strategic partners about the share-holding structure after the Hong Kong IPO, the official revealed.

In an exclusive interview with China Daily earlier this year, Li Bixin, vice-director of Heilongjiang State-owned Assets Regulatory and Administration Commission, said more than 10 large companies from both home and abroad had expressed an interest in acquiring shares in the coal group at that time.

Li during the earlier interview said Harbin-based Longmei had planned to reduce the State-owned shares in Longmei to 51 per cent after the listing from 95 per cent at the beginning of this year.

The unnamed official yesterday said there will be some changes in share distribution among holders after the IPO, but a final decision has yet to be made before the listing early next year.

The provincial government will still take a controlling stake in Longmei after the listing, to secure domestic energy supply, added the official.

Longmei was formed last December through the merge of four State-owned coal companies Jixi, Hegang, Shuangyashan and Qitaihe as the provincial government's strategic step in forging itself into one of the 13 large-scale major coal production bases in China.

Each of its four coal companies has an annual production capability of more than 10 million tons and the new conglomerate is able to produce more than 50 million tons of coal annually.

With proven coal reserves of 22.4 billion tons, Heilongjiang is one of China's coal-rich provinces. The province's annual coal output exceeds 80 million tons, with the four coal producers accounting for more than 60 per cent.

Longmei, which produced 27 million tons of coal in the first half of this year, aims to increase annual production to 100 million tons and up its sales income to 20 billion yuan (US$2.4 billion) by 2010.

The company's coal products target the sectors of power generation, steel and petrochemical production, Longmei source told China Daily.

Its largest users include the Liaoning-based Anben Steel Group Company, which was forged through a merger of two local steel giants Anshan Iron Steel Group and Benxi Steel in August, as well as Jilin-based Jilin Chemical Industrial Co Ltd. A small proportion of its products are exported to Japan and South Korea.

Longmei's Hong Kong IPO does not come alone for China's coal industry since Shehua Energy made its listing debut in Hong Kong in June.

The country's second-largest coal producer after Shenhua, China National Coal Group Corp, intends to raise US$1 billion from a Hong Kong IPO in the first quarter of next year.

Industry analysts said it is still a good time for domestic coal firms to get listed, although market observers have shown concerns over a down trend for the coal market due to a supply surplus, as a result of government macro-controls to slow the coal-guzzling sectors such as steel and power.

"Although coal prices have slightly dropped since the beginning of the year, I still remain optimistic over the coal market in China," said Zhang Wenxian, a senior analyst with Shenzhen-based Guotai Jun'an Securities (Hong Kong) Ltd.

Zhang said the surging energy demand and the government decision to close down small collieries would still keep supply tight to meet demand.

China last year produced 1.96 billion tons of coal, and used 1.89 billion tons.

(China Daily 10/13/2005 page10)