Shenhua Takes Smart Step Into Mongolia 中国神华走入蒙古

By newsdoug on July 7, 2011

Shenhua goes mining in Mongolia I reported three months ago that leading Chinese coal producer Shenhua (HKEx: 1088; Shanghai: 601088) looked set for some global M&A after raising more than $20 billion (previous post), and am pleased to say that I really like its first major deal on the global stage in Mongolia. (English article) While the deal, involving a project called Tavan Tolgoi, isn’t really M&A, since Shenhua will develop it along with consortia from America and Russia, it looks like a very solid first move for Shenhua as it ventures outside its home China market. Perhaps most importantly, this new project lies in a country right next to China, meaning Shenhua should easily be able to develop the rail and other infrastructure needed to transport the coal back home for use in China’s fast-growing, energy-hungry economy. The coal involved is also of high grade, meaning it should see strong demand from energy makers keen to play their part in China’s ongoing clean-up of its polluted environment. And lastly, Mongolia itself is a country where Shenhua should face little political resistance, unlike similar projects in Western countries like Australia, the US and Canada, where Chinese resource firms after often greeted with opposition from nationalistic interests. The budget for this one also looks appropriate, with analysts estimating Shenhua will have to invest about $7 billion in the project’s first phase — easily affordable for a company that just raised $20 billion and could easily raise more. After announcing preliminary results of tenders for the project earlier this week, Mongolia, after South Korea and Japan raised objections, has said the results are not yet final. (English article) But considering the politics involved, namely that Mongolia wants to build strong relations with its two neighbors and the US, I would be surprised if there are any major changes between the preliminary announcement and the final deal.

Bottom line: Shenhua’s winning of a major project in Mongolia is a good first step abroad, providing a rich coal area in a nearby country that wants to develop better relations with China.

三个月前我曾在一篇博客中提到中国神华集团<1088.HK><601088.SS>进行价值或高达1,600亿元人民币的配股再融资後，很可能会展开海外并购（前博文）。现在我很高兴地说，我非常喜欢神华在国际舞台上的首个重大并购。虽然此次交易严格来说并不算并购，因为神华是与来自美国、俄罗斯的财团共同开发蒙古Tavan Tolgoi项目，但看来这是神华走出国门的坚实第一步。也许更重要的是，新项目所在国为中国近邻，神华应该可以很容易建设把煤炭输往中国所需的基础设施。而且项目涉及的煤炭等级较高，能源厂商的需求应该非常旺盛，以满足中国环保要求。最後，神华在蒙古应该不会面临什麽政治阻力，不像在澳大利亚、美国与加拿大等西方国家，中国资源企业往往因为民族主义利益的因素遭遇反对。该项目所涉资金看来也比较合适，分析人士预计神华对项目第一阶段大约将投资70亿美元。对於一家刚刚融得200亿美元资金的企业而言，这完全不是问题。本周稍早项目竞标的初步结果宣布後，日本和韩国方面提出异议，蒙古则表示这还不是最终决定。但是考虑到政治因素，即蒙古希望与两大邻国及美国建立强有力的关系，我认为初步结果与最终决定不会有大的出入。

一句话：神华赢得蒙古重大项目是其走上国际舞台的良好起步，因Tavan Tolgoi拥有丰富煤炭资源，而项目所在国蒙古希望与中国建立更紧密关系。