China Shenhua Energy

[Choon]

China Shenhua Energy (CSE) is the largest coal producer in China. 

This is the first HK/China-listed company I am looking at and I am not too sure about how its shares are listed on both exchanges and the implications that an investor should take note of.

I have the following questions and hope to be enlightened by fellow value buddies. Thank you.

1. As of 29Jan2021 the listed prices of CSE H-Share (1088) and A-Share (601088) are 14.38HKD and 17.40CNY. At the current RMBHKD exchange rate of 1.20,  the H-Share is 31% cheaper than the A-Share. Am I interpreting the price disparity and potential undervaluation correctly? 


2. Based on the disclosure in the annual report, there are 16.5bn RMB ordinary shares  and 3.4bn overseas listed foreign shares. Does it mean that the H-Share and A-Share are distinct from one another, not mutually interchangeable?


3. Would it be correct to say that there is no arbitrage opportunity, in the sense that one would not be able to buy the cheaper H-Share on HKSE, then sell it immediately at the higher price of the A-Share on Shanghai Stock Exchange? 
 
 
4. In order for there to be a realisable arbitrage opportunity for me, what would be needed is a fairly efficient market, that would over time, caused the lower-priced H-Share to converge towards the higher-priced A-Share?   
 
 
5. Nevertheless, even if there is no practical arbitrage opportunity, the lower priced H-Share still provides some value to the long-term investor, because if the company is to wind-up one day, the lower-priced H-Share gives the investor the same claim on the company assets as the higher-priced A-Share?   

[weii]

China Shenhua Energy (CSE) is the largest coal producer in China. 

This is the first HK/China-listed company I am looking at and I am not too sure about how its shares are listed on both exchanges and the implications that an investor should take note of.

I have the following questions and hope to be enlightened by fellow value buddies. Thank you.

1. As of 29Jan2021 the listed prices of CSE H-Share (1088) and A-Share (601088) are 14.38HKD and 17.40CNY. At the current RMBHKD exchange rate of 1.20,  the H-Share is 31% cheaper than the A-Share. Am I interpreting the price disparity and potential undervaluation correctly?
H-Share has historically been cheaper than A-Share and the percentage difference in price has not narrowed for many years.


2. Based on the disclosure in the annual report, there are 16.5bn RMB ordinary shares  and 3.4bn overseas listed foreign shares. Does it mean that the H-Share and A-Share are distinct from one another, not mutually interchangeable?
Not mutually interchangeable

3. Would it be correct to say that there is no arbitrage opportunity, in the sense that one would not be able to buy the cheaper H-Share on HKSE, then sell it immediately at the higher price of the A-Share on Shanghai Stock Exchange? 
 Yes
 
4. In order for there to be a realisable arbitrage opportunity for me, what would be needed is a fairly efficient market, that would over time, caused the lower-priced H-Share to converge towards the higher-priced A-Share?   
Unlikely to converge in the near future 
 
5. Nevertheless, even if there is no practical arbitrage opportunity, the lower priced H-Share still provides some value to the long-term investor, because if the company is to wind-up one day, the lower-priced H-Share gives the investor the same claim on the company assets as the higher-priced A-Share?  
Not sure whether the claim will be the same. Just look at Tianjin Pharm which is listed in Singapore and China as an example, exit offer may be different, they may provide offer for Singapore or Hong Kong first. 

China Shenhua may not be a good investment in the long term due to the focus on clean energy.

A good reference guide on the above:
https://www.schroders.com/en/insights/ec...-a-shares/

[Choon]

China Shenhua Energy (CSE) is the largest coal producer in China. 

This is the first HK/China-listed company I am looking at and I am not too sure about how its shares are listed on both exchanges and the implications that an investor should take note of.

I have the following questions and hope to be enlightened by fellow value buddies. Thank you.

1. As of 29Jan2021 the listed prices of CSE H-Share (1088) and A-Share (601088) are 14.38HKD and 17.40CNY. At the current RMBHKD exchange rate of 1.20,  the H-Share is 31% cheaper than the A-Share. Am I interpreting the price disparity and potential undervaluation correctly?
H-Share has historically been cheaper than A-Share and the percentage difference in price has not narrowed for many years.


2. Based on the disclosure in the annual report, there are 16.5bn RMB ordinary shares  and 3.4bn overseas listed foreign shares. Does it mean that the H-Share and A-Share are distinct from one another, not mutually interchangeable?
Not mutually interchangeable

3. Would it be correct to say that there is no arbitrage opportunity, in the sense that one would not be able to buy the cheaper H-Share on HKSE, then sell it immediately at the higher price of the A-Share on Shanghai Stock Exchange? 
 Yes
 
4. In order for there to be a realisable arbitrage opportunity for me, what would be needed is a fairly efficient market, that would over time, caused the lower-priced H-Share to converge towards the higher-priced A-Share?   
Unlikely to converge in the near future 
 
5. Nevertheless, even if there is no practical arbitrage opportunity, the lower priced H-Share still provides some value to the long-term investor, because if the company is to wind-up one day, the lower-priced H-Share gives the investor the same claim on the company assets as the higher-priced A-Share?  
Not sure whether the claim will be the same. Just look at Tianjin Pharm which is listed in Singapore and China as an example, exit offer may be different, they may provide offer for Singapore or Hong Kong first. 

China Shenhua may not be a good investment in the long term due to the focus on clean energy.

A good reference guide on the above:
https://www.schroders.com/en/insights/ec...-a-shares/

Thanks Weii for the clear explanations and article. Much appreciated.

Whether China Shenhua would be a good investment in the long-term due to the shift towards clean energy, I am still forming my thoughts on the larger question of (i) is there a price where the headwinds for a company are all priced in; or (ii) avoid companies with headwinds because one never know much stronger the wind can be.