The company produced 102 million tonnes of coal in 2003, or 6% of China’s total output. It owns and operates the huge Shefu Dongfeng coalfield in the northern province of Shaanxi and Inner Mongolia.

The company also runs a range of infrastructure businesses include power generation, railways and ships.

If the deal goes ahead Shenhua could be the first mainland firm to launch simultaneous IPOs on the Shanghai and Hong Kong markets. There is currently a big variance in share prices between Chinese companies with domestically-traded shares and those that trade in offshore markets and this deal could be the first step in reducing this variance.

The listed entity is expected to be called China Shenhua Energy and would raise between US$1.45 billion and US$2 billion on the back of strong demand for stocks in companies supplying fuel and raw materials to China's fast-growing economy.

It is thought around 25% of the company will be sold in the IPO with 7% to be listed in Shangai and 18% in Hong Kong-listed shares.

According to The Asian Wall Street Journal Chinese companies listed in Hong Kong trade at about 14 times estimated prospective earnings, but trade at nearly double that in Shanghai. This is a result of a scarcity of Chinese stocks.

The Shenhua deal has the backing of Merill Lynch and Deutsche Bank.