Qinfa Group increases equity interest in Huameiao Energy by a further 48%

Through the move, the company further expands coal asset base and enhances cost effectiveness.

China Qinfa Group Limited (“Qinfa Group” or the “Group”), a leading private integrated coal operator in China, announced a very substantial 48% increase of its equity interest in Huameiao Energy Group (“Huameiao Energy”). The additional equity through its wholly owned subsidiary Guangfa Energy Investment Company Limited (“Guangfa Energy”), transforms Huameiao Energy into the controlling shareholder from 32% equity interest to 80%. 

Pursuant to the agreement, the consideration payable by Qinfa Group for the acquisition of Huameiao Energy is RMB2.88 billion (equivalent to approximately HK$3.51 billion). The Group will be payable the consideration in cash in three installments. RMB200 million (equivalent to approximately HK$243.9 million) [has already been paid] by late October 2011. RMB800 million (equivalent to approximately HK$975.6 million) will be payable by late November 2011. The RMB1.232 billion (equivalent to approximately HK$1.502 billion) will be payable by late June 2013.

RMB648 million (equivalent to approximately HK$790.2 million) will be settled by way of the Group taking up the responsibility to repay the banking facilities of Huameiao Energy in the amount of RMB648 million (equivalent to approximately HK$790.2 million), upon obtaining approval from the relevant PRC government on the transfer of equity interest of Huameiao Energy. All in all, the Group is to finance RMB1.08 billion of the consideration with a bank loan and the remaining part of the consideration of RMB1.8 billion with its own resources. The consideration payable by the Group for the acquisition would not affect the use of the net proceeds from the Global Public Offering. 

The acquisition is favourable to the Group’s long term development. It reinforces its vertically integrated coal supply chain and substantially increases its rich quality coal resources. The growth in sales of self-produced coal should not only bring a steady income stream to the Group and improve its profitability, but also reduce the deposits and the prepayments for its coal trading business, thus greatly improving the Group’s liquidity. The close proximity of the coal mines of Huameiao Energy to the Group’s coal loading station in Datong enables the Group to fully utilise its own logistics network, thereby reducing transportation costs. Also, since Huameiao Energy has secured approval to acquire and integrate coal mines in Shanxi, the Group can seize the acquisition and merger opportunities in a major coal production region of China, according to a Qinfa Group report. 

Huameiao Energy is defined as a merging and reorganisation entity by Shanxi Provincial Government, with qualifications for the acquisition or integration of coal mines. Huameiao Energy presently has three coal mines, Xingtao Coal Mine, Fengxi Coal Mine and Chongsheng Coal Mine, with a total coal reserve of approximately 308 million tonnes. Xingtao Coal Mine has been designated a standardised coal mine by the People’s Government of Shuozhou City. Xingtao Coal has obtained the Coal Production Permit which is valid until 31 January 2018 and is expected to produce not less than 3 million tonnes of raw coal annually thereafter. Fengxi Coal Mine has a coal reserve of approximately 92.4 million tonnes. It has started the early trial run stage in 2011 and the normal production is expected to commence in the first quarter of 2012 with an annual designed production capacity of not less than 3.5 million tonnes of raw coal. Chongsheng Coal Mine has a coal reserve of approximately 88.2 million tonnes and is expected to commence coal production in the fourth quarter of 2011 with an annual designed production capacity of not less than 2.8 million tonnes of raw coal. The main products of the three coal mines are long flame coal and gas coal which could be used in power generation and coke making. 

Ms Wang Jianfei, Chief Executive Officer of Qinfa Group, said, “Our management is very excited about the acquisition transaction. It is important in that it continues our strategy of vertical integration of upstream and downstream businesses, further enhancing the Group’s cost effectiveness and expanding its asset base. Becoming the controlling shareholder of Huameiao Energy strengthens the Group’s strategic position of sourcing quality coal in Shanxi Province and the major coal production regions of China. In the future, the Group intends to leverage its complete coal operation business chain to reinforce its leading position among private coal operators.”