Foreign financial companies keen to fund China's energy market

Foreign financial agencies are eager to play a role in China's coal industry, as the world's No. 1 coal producer looks to diversified sources to finance the fast-expanding industry.

As the world's No.1 producer and consumer of coal, China needs more energy, especially coal, to fuel its booming economy.

The central bank would continue to encourage coal companies toseek multiple channels to raise funds, including securitization, direct financing and energy fund, said Ma Delun, vice governor ofthe People's Bank of China, at the China (Taiyuan) International Coal and Energy New Industry Expo 2008.

Although China's coal industry has good returns, it is still weak in funding the industry development by itself, notably in theareas of coal-to-liquid (CTL), coal-bed gas exploration, and coal gasification, which are challenged by huge investment risks, saidMao Jinmin, director of the People's Bank of China's Taiyuan branch.

China needs diversified investment sources and professional financial services to nurture the coal industry, he said during the exposition.

In Shanxi, where one third of China's coal output are churned out, private capital are commonly used to finance traditional coalmining, which is environmentally-risky. While the application of clean energy technology and deep processing of coal are capital-strapped.

On a energy forum held during the exposition, professionals from many overseas financial institutions suggested China utilize international capital market to fund its industry. The world's leading mining firms such as Rio Tinto, Anglo American Xstrata and China's Shenhua are all good examples, they said.

Many energy companies including Sinopec and PetroChina saw good market value and P/E ratio after getting listed in Hong Kong bourse, said Huang Xingling, deputy representative of Hong Kong Exchange's Beijing Office at the forum.

She said the overseas listing could not only raise fund, but also help improve the corporate management and enhance the company's international reputation.

Since bank loans, the main source of capital for China's coal firms, were no longer easy to get as a result of the nation's tight monetary policy, we advised that company make good use of listing, corporate bonds, private fund and merges and acquisition to raise money, said Wang Zhonghe, managing director of Deutsche Bank China.

Deutsche Bank has helped many Chinese energy enterprises raise funds in overseas in recent years. In 2005, as the main underwriter for 3-billion-U.S.dollar-IPO for Shenhua Group, Deutsche Bank helped secure the subscription of many institutional investors despite the big fluctuation in global capital market.

Ede I jjass, deputy director of the World Bank (WB)' sustainable development department, said WB has invested in many coal processing projects in China. It is in talk with Shanxi on a plan to finance a coal-bed gas development project.

To support the development of clean and renewable energy is our important goal, he said at the forum.

At the exposition, the U.S. coal mining machinery producer Taggart Global, LLC not only presented its mechanical solution program, but also allied with U.S. Quintana Capital Group to provide financial services to support China's coal firms in coal chemical and coal-bed gas exploration.

Xinhua leart from sources with the provincial government that Shanxi is considering large-scale listing of the coal enterprises in the province to take advantage of the global capital market.

Insiders noted government should beef up policy support, including lowering the threshold of the entrance of the foreign capital and further encouraging the participation of private funds.