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Shenhua shares double on IPO

Economic growth, Financial Events
By Paul Hodges on 10-Oct-2007

Coal-to-chemicals just took a further step towards becoming a major source of chemical production once again.

Yesterday, major coal producer Shenhua Energy listed on the Shanghai stock exchange, and saw its shares jump 93% to value it at $173bn. Shenhua is the world’s second largest seller of coal, after the US’s Peabody Energy, and it now becomes the world’s largest IPO this year.

This is part of a process by which huge sums of money are now being raised in China to finance industrial development. As I noted on June 22, PetroChina started the trend by successfully raising $5.6bn, to help finance its proposed 6 new ethylene cracker projects, as well as to develop new oilfields and construct new refineries.

Shenhua Energy is going down the same expansionary route. Having consolidated many of China’s coal companies over the past decade, Shenhua is now looking to invest in a range of coal, power and transportation projects. It aims to produce 200 million tonnes of coal in 2010, compared to 137 million last year, as well as 20,000 megawatts of electricity.

In addition, and critically for the chemical industry, it plans to ramp up its activity in the coal-to-liquids and coal-to-chemicals sectors. It has already partnered with Dow Chemical in planning to build a world-scale coal-to-chemicals complex in Shaanxi province. This intends to use ‘clean coal’ technologies to produce ethylene and propylene, as well as a chlor-alkali unit and a wide range of derivatives.

The chemical business started life by adding value to coal, and the impact of higher oil prices seems to be re-opening this route as an economic source of feedstock for the future. With 66 billion yuan now in the bank post IPO, nobody should doubt Shenhua’s ability to finance its ambitious plans.