Green_Dragon_Web.jpgAnother day, another Chinese company lists on London's AIM market.

Investors not yet suffering from indigestion might want to take a look at Green Dragon Gas, which specialises in extracting methane trapped in China's coal fields — a potentially huge new energy source.

The company raised $25m today when it joined AIM and became the largest China play listed on the London's junior market. Based on its placing price, the company has a market capitalisation of over $500m, although the shares drifted marginally below the placing price during the first day.

Like so many junior explorers, Green Dragon has zero revenues but lots of potential.

It has five production sharing agreements for coal bed methane (CBM) with the state-owned China United Coal Bed Methane Corporation and plans to drill its first two projects in 2006 and 2007.

One is located close to Nanchang, capital of Jiangxi province, which is “reported to be facing an energy shortage,” Green Dragon notes with a certain air of schadenfreude in its admission filing.

Randeep Grewal, Green Dragon's chairman and chief executive, said:

2007 promises to be a landmark year for CBM and its contribution to the Chinese energy supply. Green Dragon is a pioneer, one of the largest foreign partners of the Chinese government in CBM and ideally positioned to capitalise on the country's increasing demand for energy.

Historically, methane produced by coal seams has been viewed as an unwelcome byproduct of coal mining and used to be treated as a hazardous waste product, however more recently the increased demand for natural gas, improved extraction technology and higher gas prices have led to the commercial exploitation of CBM reserves. In the US, CBM accounted for approximately 8% of domestic gas production in 2004.

Coal accounts for more than two thirds of China's energy consumption but gas supplies just 3%.

A total of 36 Chinese firms are now on London's AIM market, 18 of which joined this year. The rush of applicants from China and other emerging markets, has led some critics to compare the current boom with the dotcom era, when internet stocks were flavour of the day. And we all know had that story ended.

Simon Littlewood, chief executive of London Asia Capital, the Far East-focussed investment bank, is particularly critical and says some brokers do not understand the risks associated with Chinese businesses. He told The Guardian:

Their ability to monitor the company after it has listed is limited. Take Monstermob and IGM: anybody who knew China would have known that was a risk.”

As reported earlier by EngagingChina, AIM-listed Monstermob saw its share price collapse after being caught out by a tightening of the rules governing China's mobile phone services market. Fellow AIMer IGM suffered the same fate.

As we said back then, Monstermob should have seen this danger coming as it is not the first time that China's regulator has changed the rules.

Littlewood says most advisers in the UK have little knowledge of China, and that there are potential problems of corporate governance that are eroding the reputation of AIM.

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