A worker at a coal plant in Beijing. (Photo/Xinhua)
Three lawsuits over private loan disputes against Zhenfu Energy Group, a coal company in Shanxi in northern China, reveal that local coal companies are experiencing unexpectedly difficult financial conditions despite their enormous investment in technological reforms and resources. Such a situation has not been seen in the past 10 years.
China Credit Trust Co, ranked third by assets under management in 2010, announced on June 26 that Zhenfu Energy Group had three lawsuits against it in the second quarter of this year. The announcement attracted attention from trustees, who sent specialists to check and take immediate measures to control risk and protect investors.
The company was established in July 2010, when its founder Wang Yusuo invested 5 million yuan (US$784,500) and his son Wang Pingyan invested 45 million yuan (US$7.06 million) to acquire a 90% stake.
Local people revealed to Shanghai's First Financial Daily that the Wangs may have borrowed up to 2 billion yuan (US$314 million) from private lenders.
After undergoing reforms, one third of the previous coal enterprises in Shanxi remain in the market. Out of all cities in the province, Luliang saw the largest number of its coal companies survive. About 60 out of the 112 coal mines in Luliang are operated by private enterprises, including Zhenfu Energy Group.
If not for the lawsuits, the group could have ushered in a golden period in its development. Zhenfu has five coal mines and a coal preparation plant as well as several coal mines that are either awaiting approval or are under construction, presenting a significant financial burden to the group.
Zhenfu called for 600 million yuan (US$94 million) in investment in one of its coal mines which has an annual production capacity of 900,000 tons.
Meanwhile, Luliang invested 7-8 billion yuan (US$1.1 billion-$1.26 billion) in building coal wells last year. Private coal enterprises need to integrate coal wells to increase their capacity and scales.
"If you don't want to be acquired by state enterprises, you have to buy more coal wells to reach your goal. However, private enterprises apparently do not have the advantages of state enterprises and inevitably need to spend big money to stay afloat," an official in Luliang told the newspaper. Coal mine owners who require hundreds of millions of yuan in investment have no choice but to turn to loan sharks.
Lengthy technological reforms and large monthly interest payments have put coal mine owners under even heavier financial pressure. Making matters worse, declining coal prices, high inventories and a slump in operations have caused mine operators to become cautious and pessimistic. "If the situation continues, more than half of the private coal companies here will have to shut down," an official in Luliang responsible for the coal sector said.