“China Backdoor IPO Strategy: Coal”

By Travis Johnson, Stock Gumshoe, October 16, 2007

So, will the Gumshoe be wrong again? I was very skeptical of J. Christoph Amberger’s plan to buy in to stocks before they IPO in China, as a way of riding the wave of the Chinese stock market’s incredible growth. And the one time I saw a specific teaser that advocated this, I didn’t see the logic.

Still, it worked. Last time around it was Lenovo that they were touting, as the stock that was already publicly traded in the US and in Hong Kong, but should see significant gains once it also IPOd on the Shanghai exchange. You can refer back to my comments on that previous one, too cautious though they were, if you’re interested. Lenovo is one of the top ten performers in the Gumshoe Spreadsheet, just to reinforce the fact that I was wrong.

But a sample of one is, to be frank, uninspiring in its predictive power — so I wouldn’t guarantee that this second “pre-IPO” teaser is also going to outperform significantly. Still, it’s worth a look, don’t you think?

So what are we told about this “China IPO Backdoor Strategy” that could be, in Amberger’s words, the”Most Profit-Rich IPO of the Season?”

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Well, he also talks quite a bit about the most popular pre-IPO company, Alibaba, but that’s going public (in part, at least) only on the Hong Kong stock exchange. There is sort of a backdoor way to get in on this one, because it’s something like 30-40% owned by Yahoo, but it’s not what Amberger’s talking about here.

No, I’m assuming that this refers to a second teaser ad that’s making the rounds, this one for a company that, much like Lenovo, is already publicly traded but that is about to make an IPO offering on the domestic Chinese markets to raise more cash (and become exposed to mainland Chinese investors for the first time).

And this is a coal company. Amberger calls it China’s “premier coal company,” and says that they desperately need cash to expand and build capacity in time to supply all the electricity needs of the Olympic games.

The hyperbole is laid on with a trowel — this could “double or triple in the first day,” and “People are going to stand in line to get shares of the upcoming issues. Most will be turned away disappointed.”

So … are you ready for the bad news?

I suspect that this company, if I’m feeling charitable and want to give Amberger credit for catching the first one of these transactions, is probably …

Shenhua Energy (traded on the pink sheets at CUAEF)

The bad news? The Shanghai IPO already happened, last week — the ad is still circulating around, but the company listed in Shanghai a few days ago. On September 14, the day Amberger said he pulled his data, the shares were a little over $5 on the pink sheets, and they’re up over $7 now. This also trades in Hong Kong, which also saw a bump in the share price, and of course the Shanghai IPO had a dramatic return, from an offering price of about 36 to the current price above 90.

Of course, US investors can buy either the pink sheets or the Hong Kong shares, so those two are moving more or less in unison — the Shanghai shares are restricted, for the most part, to mainland Chinese, and therefore are trading at a substantial premium. As expected.

Now, it’s possible that this isn’t the stock Amberger was talking about — there is another substantial coal producer that has also filed to go public in Shanghai but has not yet gotten regulatory approval (as far as I know — haven’t dug too deep on this one).

This is the second largest coal producer, China Coal Energy (CCOZF on the pink sheets, 1898 in Hong Kong).

So, it’s quite possible that this is the stock Amberger’s talking about — it did file about a week before he started sending this email, and you can buy it on the pink sheets or in Hong Kong, substantia