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China Coal Energy Falls After Profit Warning: Hong Kong Mover

Jan. 27 (Bloomberg) -- China Coal Energy Co., the nation’s second-largest producer, headed for its biggest decline in more than six months in Hong Kong after saying profit last year may have slumped as much as 65 percent.

China Coal dropped as much as 5.7 percent to HK$3.78, the most since July 3, and traded at HK$3.87 as of 1:11 p.m. local time. The benchmark Hang Seng Index fell 2.1 percent and the Bloomberg Asia Pacific Coal Index slid 1.6 percent.

The company said net income for last year declined 55 percent to 65 percent under Chinese accounting rules, according to a Jan. 24 Hong Kong stock exchange filing. It made a profit of 8.84 billion yuan ($1.46 billion) in 2012. It cited the “continuing downturn” in the coal market, a “constant decline” in prices, a slowing economy and changes in China’s energy strategy as reasons.

The Chinese government pledged in March to take steps including cutting coal consumption as part of an effort to reduce air pollution. Highways in Beijing were closed earlier this month when visibility dropped to 500 meters (0.3 miles) amid a cloud of smog.

The nation plans to cut its reliance on coal to less than 65 percent this year from 70 percent, according to a plan released by the National Energy Administration on Jan. 24. That target was originally set for 2017, according to Helen Lau, an analyst at UOB-Kay Hian Ltd.

China Coal has 33 billion yuan outstanding in bonds and loans, according to data compiled by Bloomberg. The China Banking Regulatory Commission has ordered regional offices to increase scrutiny of credit risks in the coal-mining industry.

Debt and increased interests costs are “likely to generate significant volatility and pressure on earnings of China Coal, and could be an additional reason for the profit warning,” analysts at Barclays Plc, led by Ephrem Ravi, wrote in a note to clients on Jan. 24.

Spot coking coal prices in China fell 16 percent last year, according to data tracked by Bloomberg.

To contact the reporter on this story: Benjamin Haas in Hong Kong at bhaas7@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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