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

    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.
     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
 http://www.xinhuafinance.com/creditrating .
     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 http://www.xinhuaftse.com .
     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
 http://www.xfn.com/creditrating .
     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
 http://www.xinhuafinance.com .
     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
 http://www.fareast-cr.com .
     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
      Email: joy.tsang@xinhuafinance.com
 
     US
      Taylor Rafferty (IR/PR Contact in US)
      Ms. Ishviene Arora
      Tel:   +1-212-889-4350
      Email: ishviene.arora@taylor-rafferty.com
 
 

SOURCE Xinhua Far East China Ratings