China National Coal Group Corp., the country's number-two coal producer, had picked China International Capital Corp. (CICC), Citigroup and Morgan Stanley to arrange its planned US$1 billion overseas initial public offering (IPO), sources familiar with the matter said.

"The restructuring process will take at least 8-9 months to complete," a source said.

China Coal's listing in Hong Kong is expected to come by the end of this year at the earliest, following Shenhua Group, China's largest coal mining firm.

Shenhua's US$1.5 billion IPO, handled by CICC, Merrill Lynch and Deutsche Bank, is expected to hit the road in the second quarter.

China Coal's production increased 15 percent to 51 million tons last year, compared with Yanzhou Coal's 40 million tons last year and Shenhua Group's 102 million tons a year ago.

The firm had total assets of 41.5 billion yuan (US$5.01 billion) and net assets of 10.8 billion yuan at the end of 2003 and coal reserves of 11.9 billion tons, according to its Web site.

China's strong economic growth has boosted coal demand enormously. Demand in China jumped 13.8 percent to 1.863 billion tons last year.

Yanzhou Coal, the only overseas-listed Chinese coal miner, has seen its share price surge by over 40 percent in the past 12 months.

Coal prices have increased by an average of 8-10 percent, or 30-50 yuan per ton to 350-450 yuan per ton, since September 2004, according to research group China Coal Market Network.

Credit Suisse First Boston (CSFB) expects demand to reach 2.009 billion tons in 2005 and 2.139 billion tonnes in 2006.

The investment bank expects coal prices to edge up slightly over the course of 2005 due to the tight coal supply situation this year.

UBS also said earlier in a report that a lack of investment in the sector will continue to push up the coal price in the next few years.

But transport cost account for about half of coal's final price, a much bigger percentage than other commodities.

"While we believe that coal producers have gained stronger pricing power this year, transportation remains an effective leverage by the government to enforce the contract price," CSFB said.

More mainland coal producers are expected to tap the Hong Kong stock market to strengthen their financial positions as the Central Government plans to form 6-8 large coal producing groups, each with capacity of more than 100 million tons per year, to improve safety standards.

Heilongjiang Longmei Mining (Group) Co., formed in December by merging four large coal mines in the northeastern province of Heilongjiang, is also considering an overseas listing, according to domestic media.

Source: Shenzhen Daily-Agencies