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Shenhua Shares Up Nearly 90% in Shanghai Debut

Shares in China Shenhua Energy Corp jumped nearly 90% in their Shanghai debut on Tuesday, at the high end of analysts' expectations, lifted by a huge appetite for resource stocks and strong earnings prospects for the country's largest coal producer.

Shenhua's local-currency A shares opened at 68.00 yuan, compared with the IPO price of 36.99 yuan, and were trading around 70 yuan in early trade, up 89% from the IPO price.

The shares had been expected to trade at 55 to 70 yuan on their first day on the market, according to a Reuters poll of four industry analysts. "Shenhua's debut price appeared slightly too high based on the firm's current situation," said coal industry analyst Guo Chunyan at Huatai Securities. "But taking into consideration the strong prospects of the industry leader,
the price was still justified," she said.

Traders said there were signs that investors were shifting their holdings to Shenhua from smaller rivals. Shares in Pingdingshan Tianan Coal, another major producer, dropped around 3% in early trade.

At 70 yuan, Shenhua's A shares were at a 59% premium to the company's Hong Kong-listed H shares, which were quoted at HK$45.50 in the morning session.

That lagged far behind the A-share premiums of other big dual-listed Chinese resource companies. The premiums for top domestic aluminum producer Chalco and copper maker Jiangxi Copper exceed 100%.

Not Satisfied

Shenhua's chairman said on Tuesday that he was not fully satisfied with the company's A-share debut price.

"The price is within expectations, but I'm still not satisfied," Chen Biting told reporters, adding that the high quality and breadth of the company's assets, which include a coal transporting railway, justified a high share price.

China is the world's largest coal producer and consumer with output last year of 2.38 billion tons, or 38% of the global total.

Shenhua -- which competes with international coal exporters active in Asia including BHP Billiton, Rio Tinto and Xstrata -- produced 136.6 million tons in 2006 and sold 171.1 million.

Shenhua raised 66.58 billion yuan (US$8.9 billion) in China's largest domestic initial public offering last month, attracting 2.7 trillion yuan of subscriptions -- another record -- for an oversubscription ratio of 39 times.

The 70-yuan price valued Shenhua's A shares at 67 times analysts' forecasts for 2007 earnings of around 1.05 yuan per share, dearer than the average of 65 times for more than a dozen coal companies listed on the Shanghai and Shenzhen stock exchanges, according to Reuters Estimates.

Its price earnings ratio would be much more expensive than international coal and coal-related mining stocks. Xstrata's 2007 forecast PE stands at 11 times, BHP Billiton at 15 times and Rio Tinto at 16.

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