China's top coal transporter on track to raise $5b in IPO

Daqin Railway, operator of China's major coal transport line, plans to raise as much as 25 billion yuan ($5 billion) in the nation's largest domestic initial public offering.

Daqin will start selling as many as five billion local currency shares at between 4.58 yuan and 5 yuan each, the company, based in the northern city of Datong, said.

The highest price is 18.2 times Daqin's reported 2005 profit, less than the average 29 times price earnings ratio of the Shanghai stock market.

The proceeds of the IPO will be used to expand capacity in a country whose economy is growing at an average of 9.6 per cent a year and relies on coal for two-thirds of its electricity needs.

The sale would exceed the funds raised by Bank of China, which last month attracted bids for 33 times the amount of stock it offered.

"The stock is worth investing in because as a monopoly on the country's major coal transport line, the company has access to resources that its rivals don't have," said Yu Hui, who helps manage seven billion yuan at the Bank of Communications in Shanghai.

"The downside of investing in the company is its limited growth potential as they can only build up capacity gradually."

Daqin transported more than 90 per cent of coal produced in the country's major coal mine areas in northern Shanxi and western Inner Mongolia between 2003 and 2005. Freight traffic on China's railway network has increased by more than 60 per cent since 1990, according to the World Bank. China is the world's biggest coal producer.

The five billion shares represent 33.45 per cent of the company's total capital. The railway operator's net income rose 49 per cent last year to 3.56 billion yuan on an 82 per cent surge in revenue to 13.1 billion yuan, it said.

Daqin moved 240 million tonnes of coal last year out of its total cargo traffic of 290 million tonnes, it said. The company also started a passenger business last year, which made up 4.2 per cent of its total revenue.

Daqin, set up in October 2004, is currently 95 per cent owned by the state-owned Taiyuan Railway Administration. China Huaneng Group, the nation's biggest power producer, also holds about a 1 per cent stake in the railway operator.

- BLOOMBERG