Bloomberg News

Yanzhou Falls as N.Y. Index Tumbles on Europe: China Overnight

December 20, 2011

Dec. 20 (Bloomberg) -- Chinese companies trading in the U.S. declined, led by materials producers, as Europe’s central bank chief said the bank can’t step up bond purchases, tempering optimism for a quick resolution to the region’s debt crisis.

Yanzhou Coal Mining Co., China’s fourth-largest producer of the fuel, lost 3.9 percent to a two-month low before trading was halted, leaving the shares at a 14 cent discount to the Hong Kong stock, after a report that it plans to purchase Australia’s Gloucester Coal Ltd. Aluminum Corporation of China Ltd. fell 5.6 percent to the lowest since January 2009. The Bloomberg China-US 55 Index of the most-traded Chinese stocks retreated 2 percent to 92.28 at the close in New York as 51 companies dropped.

European Central Bank President Mario Draghi said he can’t increase government bond purchases and that significant risks to the economy persist. The official Korean Central News Agency said North Korean leader Kim Jong Il died Dec. 17 from a heart attack. State media urged citizens to “loyally follow” his son, Kim Jong Un.

“None of us knows what the death of the old leader and the ascension of the new leader really means,” said Donald Straszheim, senior managing director at ISI Group. Concerns about instability in North Korea are “overdone,” he said. “What we do know something about is that the European economic and financial situation is serious, and it looks to me like it’s getting worse.”

The Hang Seng China Enterprises Index, which tracks Chinese companies trading in Hong Kong, fell 1.4 percent and the Shanghai Composite Index of domestic shares lost 0.3 percent, its eighth drop in 10 days. South Korea’s Kospi Index slid 3.4 percent and earlier plunged as much as 4.9 percent after news of the North Korean leader’s death.

Yanzhou Coal

Yanzhou Coal slid 81 cents to $20.03 in New York before New York Stock Exchange trading was halted at 10:23 a.m. pending news. The company said trading would be suspended because of a “proposed transaction,” according to a statement to the Shanghai Stock Exchange. Trading will resume no later than Dec. 23, according to that statement.

The Hong Kong shares fell 3.1 percent to HK$15.70, or $2.02. Each American depositary receipt is the equivalent of 10 ordinary shares.

Yanzhou Coal plans to acquire Australia’s Gloucester Coal Ltd. for at least $2 billion in cash and stock, a person with knowledge of the matter said. Gloucester has a market value of A$1.43 billion ($1.42 billion).

“Domestic production of coal may not keep up with the overall demand and Yanzhou is going out and making smart acquisitions,” said David Lee, a portfolio manager at Newgate Capital Management LLC, which holds shares of the company. He said he couldn’t comment on the valuation because details of the transaction aren’t known.

Youku, Tudou

Cnooc Ltd., China’s largest offshore oil explorer, lost 3.2 percent to $172.23 after reporting a natural gas leak. The Beijing-based company stopped production equivalent to 160,000 cubic feet of natural gas a day because of the pipeline leak, according to a statement. No one was injured in the incident and it didn’t cause any pollution, the statement said.

The Hong Kong shares fell 1.6 percent to HK$13.58, or $1.74. Each American depositary receipt is worth 100 ordinary shares. The gap of about $2.17 between the ADR and the equivalent Hong Kong shares was the largest among companies in the China-US index.

Youku.com Inc. and Tudou Holdings Ltd., China’s two largest operators of online video sites, accused each other of intellectual property infringement for allegedly running pirated videos. Youku dropped 5.5 percent and Tudou slipped 4.9 percent. Youku previously said it filed a copyright infringement lawsuit against Tudou on Dec. 16.

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 2.4 percent to $33.61.

Sino-Forest

Sino-Forest Corp., the Chinese timber company fending off fraud allegations, defaulted on two sets of bond payments after failing to publish its third-quarter financial results. The company said it’s seeking waivers from bondholders.

Sino-Forest dropped 74 percent in Toronto trading after Carson Block, a short seller, said in June the company overstated its timber assets. The shares haven’t traded since August.

Valuation

Domestic Chinese stocks trade at 10.6 times projected earnings, the lowest ratio in at least five years, according to Bloomberg data.

Chinese equities are at their “darkest time” and unlikely to see “big rebounds” in the short term as a lack of confidence overshadows “very low” valuations, according to Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co. The government may ease monetary policy next year on a “limited scale,” she said at a briefing in Beijing.

China may start to “slowly” relax property curbs from the third quarter next year as property developers face difficulties over the next six months, she said.

China’s domestic bourse has plunged 21 percent this year amid concerns growth is slowing as China works to curb inflation and lending.

New-home prices dropped from the previous month in 49 cities, or more than half of the 70 largest cities monitored by the Chinese government, compared with 33 posting decreases in October, the national statistics bureau said in a statement on its website Dec. 18. China has raised down payments and tightened mortgage requirements to cool the real estate industry.

A survey of China’s business confidence is scheduled for release on Dec. 22.

The Chinese yuan gained 0.2 percent to 6.3378 per dollar in Shanghai, according to the China Foreign Exchange Trade System.

--With assistance from Li Yanping in Beijing and Cathy Chan in Hong Kong. Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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