Xinhua Far East Assigns AA Issuer Credit Rating to China Shenhua Energy Company Limited

2007-03-06 16:40 1147

HONG KONG, March 6 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings ("Xinhua Far East") today assigned an AA issuer credit rating to China Shenhua Energy Company Limited ("Shenhua" or "the Company", HK 1088). The company's rating outlook is stable.

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The AA rating reflects Shenhua's leading market position in China's coal mining industry in terms of reserves, scale, efficiency and the potential to benefit from strengthening coal consumption in China. Meanwhile, Xinhua Far East notes that, by integrating coal-power railways into its business model, Shenhua has been able to strengthen its market position, boost its earnings and help itself withstand business cycles. The rating also reflects the government's strong support in nurturing large-scale coal groups and upgrading the industry as a whole. At the same time, the rating incorporates our concerns about both rising capacity in the highly fragmented Chinese coal mining sector and the impact of potential increases of resource taxes on Shenhua's future profitability.

Xinhua Far East believes China will continue to rely heavily on coal as a major energy source. Consumption of large volumes of coal should persist as a result of overall economic development and growing demand from the power, steel and construction sectors. This provides growth opportunities for Shenhua, which not only leads China's coal producing industry in terms of reserves and coal output, but also is highly profitable and operationally efficient.

Of particular note is the core competitiveness of Shenhua's coal-power railway integrated business model, which has enhanced the market positions and earning abilities of its coal and power segments, helping the company to withstand economic cyclicality. Owning and managing dedicated railway lines and ports have been especially valuable for the Company, given the persisting coal transportation bottleneck which has plagued China's coal industry for years. We believe an expansion of Shenhua's power business over the next few years will further reinforce this advantage.

Shenhua's coal production, power generation, railway lines and port construction levels are continuing to show strong growth, meaning the company will incur large capital expenditure over the next two to three years. However, we believe it will be able to generate sufficient cash flow to meet its expenditure needs without having to resort to external financing. As a result, Shenhua has limited debt pressures over the medium term, with its current gearing ratio possibly even declining modestly in the future.

Despite the fact that Shenhua is one of the more competitive coal enterprises in China, we have concerns about the current state of industry fragmentation. With rapidly rising capacity and intensifying competition, the coal market is becoming more volatile. This may exert pressure on Shenhua's earnings moving forward. However, despite the inherent industry risks, the government's efforts to consolidate the sector and its support of leading companies like Shenhua should eventually benefit large-scale producers.

Even so, a rising awareness of the importance of sustainable development of the economy is expected to prompt policy-makers to substantially raise resource taxes on coal in the near future. This is another factor constraining Shenhua's ability to achieve a higher rating.

Established in November 2004, China Shenhua Energy Co Ltd is the world's second and fourth largest coal enterprise in terms of coal reserves and annual coal production respectively. In 2005, the thermal coal it produced accounted for 12% of China's total output. Shenhua also operates ten power plants across China, with a total installed generation capacity of 10,000 GW as of the end of 2006. As of June 30, 2006, Shenhua Group Corporation Limited, Shenhua's parent company, held an 81.21% equity stake in the company.

China Shenhua Energy Co Ltd is also a constituent of the Xinhua/FTSE China 25. As of market close March 5, 2007, its total H-share market capitalization and investable capitalization were HK$329.2 billion and HK$37.96 billion respectively.

For the rating report summary, please visit .

Note to Editors:

About Xinhua/FTSE China 25 Index

Xinhua/FTSE China 25 Index is a real-time tradable index designed for use as the basis for both on-exchange and OTC derivative products, mutual funds and ETFs. The index includes the largest 25 Chinese companies comprising H shares and Red Chip shares, ranked by total market capitalization. The index is designed to meet fund regulatory requirements worldwide, with constituent weightings capped, in order to avoid over-concentration in any one stock. For daily data and further information, see .

About Xinhua Far East China Ratings

Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to rank credit risks among corporations in China. It is a strategic alliance between Xinhua Finance (TSE Mothers: 9399), and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance partner company in 2003 and the first China member of The Association of Credit Rating Agencies in Asia in December 2003.

Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East's rating methodology and process blend unique local market knowledge with international rating standards. Xinhua Far East is committed to provide investors with independent, objective, timely and forward-looking credit opinions on Chinese companies. It aims to help investors differentiate the credit risks among the corporations in China, thereby, cultivating their awareness and promoting information disclosures and transparency in China market. For more information, see .

About Xinhua Finance Limited

Xinhua Finance Limited is China's unchallenged leader in financial information and media, and is listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance serves financial institutions, corporations and re-distributors through four focused and complementary service lines: Indices, Ratings, Financial News and Investor Relations. Founded in November 1999, the Company is headquartered in Shanghai with 20 news bureaus and offices in 19 locations across Asia, Australia, North America and Europe. For more information, please visit .

About Shanghai Far East Credit Rating Co., Ltd

Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating company with comprehensive business coverage in China. It is an independent agency established by the Shanghai Academy of Social Sciences with the mission to develop internationally accepted standards for capital market in China. The company is a pioneer in conducting bond-rating business in China. For years, it has been authorized by the Shanghai branch of the PBOC to undertake loan certificate credit rating.

Since establishment, it has rated over 1,000 corporate long-term bonds and commercial papers, based on the principles of objectivity, fairness and independence. The company has also maintained over 50% market share in the loan certificate-rating sector in Shanghai for three consecutive years. With its strong local presence and knowledge, it provides investors with unique and the most insightful credit opinion. For more information, see .

For more Information, please contact:

Hong Kong

Joy Tsang

Corporate & Investor Communications Director

Xinhua Finance

Tel: +852-3196-3983, +8621-6113-5999, +852-9486-4364



Taylor Rafferty (IR/PR Contact in US)

Ms. Ishviene Arora

Tel: +1-212-889-4350


Source: Xinhua Far East China Ratings