Shanxi Coal Transportation & Sales Group Co., China's third-largest coal company, hired BOC International Holdings Ltd. and Citic Securities Co. to help sell about $1.5 billion of domestic shares, three people familiar with the decision said.
The state-owned company, based in the northern province of Shanxi, also retained Credit Suisse Group and Morgan Stanley to advise on a planned Hong Kong initial share sale, the people said, declining to be identified because the information isn't public.

China, the world's largest coal producer and user, relies on the fuel to generate almost 80 percent of its electricity. Coal companies are also benefiting from demand from steelmakers and the construction industry as China's economy grew 11.5 percent last quarter, said Donovan Huang, a Hong Kong-based analyst at Nomura Securities Co.

``I'm expecting the coal price uptrend to at least continue into 2009, setting the tone for coal companies' earnings prospects,'' said Huang, who doesn't own any such stocks. Shanxi Coal Transportation's services distributing coal for other producers are ``quite profitable,'' he said.

Shanxi Coal Transportation may sell stock as early as mid- 2008, the people said. No decision has been made on whether the company will sell shares on the mainland or in Hong Kong first, or if the offerings will be carried out simultaneously, they said.

An official at Shanxi Coal Transportation's IPO office in Shanxi declined to comment or reveal her name. Spokesmen for the investment banks also declined to comment.

Revenue Target

Shanxi Coal Transportation, which traces its roots back to 1983, aims to increase revenue by 5 percent over five years to 66.2 billion yuan ($8.8 billion) in 2010, according to its Web site. The company posted pretax profit of 5.6 billion yuan last year.

The Chinese government has urged companies to sell shares domestically instead of in Hong Kong, where they have raised $119 billion through initial public offerings since 1999 according to data compiled by Bloomberg.

State-owned companies that trade in Hong Kong, including China Shenhua Energy Co., the world's second-biggest coal seller, have offered shares in Shanghai this year. Their sales helped drive domestic stock fundraising to a record 318 billion yuan since Jan. 1, more than in the previous four years combined, Bloomberg data show.

Bank of Beijing Co. and Western Mining Co. are among companies that put plans for overseas share sales on hold in favor of a domestic IPO this year.

Stake Sale Plan

Shanxi Coal Transportation previously planned to sell stakes in its coal production, transportation, distribution and coal-to- chemicals operations to strategic investors before an international public offering, its Web site said. It had planned to offer $1 billion of shares in Hong Kong by the end of this year, the China Business News reported in June.

The Taiyuan-based company will need to obtain an exemption from the Chinese cabinet from a domestic listing rule requiring three straight years of profit before becoming publicly traded, two of the people said. The company was reorganized in July and it has yet to set up the unit that will go public.

Previous exemptions have been granted to mostly large state- owned companies under the supervision of the central government, the people said. Shanxi Coal is controlled by the Shanxi provincial and city governments, according to its Web site.

Transportation Bottleneck

Bottlenecks in transporting coal have eased with the expansion of the Daqin railway, the nation's largest for carrying the fuel, said Nomura's Huang. Even so, problems will persist because of stronger-than-expected coal demand, he said.

``When you have strong demand and a transportation bottleneck, that will benefit the distributors'' and allow them to charge higher fees, Huang said. He added that thermal coal, which is used to generate power, is an exception because its prices are more tightly regulated.