China Timber Resources Group Ltd announced Friday that it is to buy a 66 percent stake in a company building a toll expressway in a coal-producing part of Inner Mongolia for 3 billion yuan.

In a statement to the Hong Kong Stock Exchange, it said it plans to diversify its business. It also said it plans to privately issue 7 billion shares to four investors, including the Li Ka Shing Foundation, at 0.4 yuan a share in order to raise 2.80 billion yuan. The amount issued will account for 29.98 percent of total equity upon completion of the private placement.

Excluding the construction period, the targeted company, namely Inner Mongolia Zhunxing Heavy Haul Expressway Co, has an exclusive right to build and operate China's first heavy duty expressway designed for coal transportation in the Inner Mongolia Autonomous Region for 30 years, the company wrote in the statement to the city's bourse.

The 265-kilometer-long toll expressway will connect Jungar Banner and Xinghe County, a major coal production area and logistics hub for coal distribution in northern China, the company added.

The expressway is expected to begin operations in January 2013 and the proposed toll fee for the expressway is 0.15 yuan per ton per kilometer.

China Timber, through its subsidiaries, provides timber logging and trading of timber logs from forest concessions.

The proposed transaction was "in line with the company's business strategy to consider diversification into a new line of business that has significant growth potential," Cao Zhong, its chairman said in the statement.

According to its interim report, China Timber recorded a further HK$200 million loss for the six months ended September 30, 2010, compared with a loss of HK$21.1 million during the same period a year earlier.

Shares of the Hong Kong-listed company gained HK$0.025 or 6.76 percent to close at HK$0.395 on the city's bourse Friday. Trading of shares had been suspended since Wednesday pending the announcement.

"It is a good attempt for China Timber to explore some new channels for a diversified business portfolio," said Alvin Chung, associate director at Prudential Brokerage. "But its stock, though it has seen a tremendous gain since November, is quite likely to fall back to previous lows later on."

Between January and October 2010, China Timber's share price traded mainly in a range between HK$0.10 and HK$0.15. However, since November the stock has surged almost 300 percent.

"Apparently some investors learned about the transaction in advance and pushed the price to its current high," Chung added.

China Timber will also sell a total of 7 billion new shares to four investors, including Li Ka Shing Foundation Ltd, China Life Trustees Ltd, Lunar International Ltd and CEF Holdings Ltd, for HK$0.40 per subscription share, it said in the same statement.

China Life Trustees is a wholly-owned subsidiary of Singapore-based China Life Insurance (Overseas) Co Ltd, and CEF is jointly owned by Li Ka-shing's Cheung Kong (Holdings) Ltd and Canadian Imperial Bank of Commerce. Lunar International is wholly-owned by Themes Investment Partners II, LP - a private equity firm based in New York.

China Daily

(HK Edition 01/15/2011 page3)