China Shenhua Energy Co shares rose in Hong Kong Tuesday after it announced that it is to buy 8.7 billion yuan worth of assets from its parent, Shenhua Group.

The share price jumped 3.7 percent to close at HK$32.30.

The company announced Monday night that it will buy three mines in Inner Mongolia, along with other assets, including power generation facilities.

China Shenhua, a unit of the mainland's biggest coal producer, said the acquisitions will help boost the company's coal business as well as reduce competition between the listed company and its parent.

The purchases will increase the listed company's recoverable coal reserves by 20.9 percent to 14.0 billion metric tons and the marketable coal reserves by 23.8 percent to 9.15 billion metric tons, the company's statement said.

"Investors were expecting the company to buy more from the parent, but this will be taken as the start of more acquisitions," said Helen Lau, an analyst at UOB-Kay Hian Ltd in Hong Kong. "The parent has more large mining assets that it will inject into the listed company at some point."

China Shenhua Energy is also buying companies involved in power generation, coal wholesaling, oil product sales, financial services and information technology, according to Monday's statement.

The acquisitions will be funded from the proceeds of China Shenhua Energy's initial public offering of shares that trade in Shanghai, according to the statement.

"The acquisition will enable China Shenhua Energy to develop its upstream coal business so that it can offset the negative environment in its downstream electricity business," said Redford Asset Management Head of Research and Executive Director Kenny Tang, "as the mainland authorities are currently restricting a rise in price in the country's electric bills."

"With coal prices exhibiting an upward trend, the move will strengthen its upstream coal business and can boost China Shenhua Energy's profit growth by 10 to 20 percent in the future," Tang added.

"The share prices of locally-listed coal companies are already hovering around low levels so that news should help their shares rebound," Hani Securities (HK) Director K.L. Yu told China Daily.

While 25 analysts surveyed by Bloomberg have a "Buy" rating on China Shenhua Energy, six analysts rate the stock a "Hold" after the coal producer increased output to meet higher demand on the mainland.

Full-year net income may climb 20 percent to 38 billion yuan, according to the mean estimate of 16 analysts surveyed by Bloomberg.

Bloomberg and Reuters contributed to this story.

China Daily

(HK Edition 12/22/2010 page3)