PE-backed AAG Energy pulls Hong Kong IPO

AAG Energy's decision came after Zhengzhou Coal Mining Machinery saw its stock fall 8.8% on its Hong Kong debut. The underwriters covered 12.5% of the $296 million offering due to insufficient investor demand.

AAG Energy is involved in the exploration, development and production of coal-bed methane (CBM). It had earmarked the proceeds of the offering for the Panzhuang and Mali projects in Shanxi province. China is estimated to have the world's third-largest reserves of CBM, most of which are controlled by two state-owned enterprises, China United Coalbed Methane Corporation and China National Petroleum Corporation.

These companies work with private CBM specialists, including foreigners, to develop the assets. Through such arrangements, AAG Energy has a 50% interest in Panzhuang and a 70% interest in Mabi. Panzhuang is said to be the most commercially advanced Sino-foreign operated CBM project in China.

Foreign players accounted for 5.5% of gross utilized CBM production in China last year. Of this, AAG Energy was responsible for 3.3%.

AAG Energy originated from Asian American Coal, a company set up in 1999 by Morgan Massey. First Reserve was formerly an investor. The CBM operations were spun out into a separate entity and in 2008 BPEA and Chengwei Ventures supported a management buyout of the business, led by Steve Zou. They invested $88 million, with BPEA becoming the single largest shareholder in AAG Energy.

Warburg Pincus invested in the company in 2010.

Despite AAG Energy's withdrawal, Hong Kong's IPO markets have become more active in recent weeks. PICC Group, which raised $3.1 billion in the largest offering of the year, is scheduled to commence trading on Friday. Deals in the pipeline are said to include China Machinery Engineering Corporation and Century Energy.

J.P. Morgan, Barclays and Haitong Securities were underwriting the AAG Energy IPO.

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