BREAKFAST DEALS: Tinkler's cash flow

Rumours mount that Nathan Tinkler could be short on cash for his Whitehaven deal, while Northern Iron bid may be funded by Russia.

It's strange to think Nathan Tinkler's $5 billion-plus privatisation of Whitehaven Coal could be threatened by an unknown mining junior, but revelations from Blackwood Corporaton have got the media in a tizz about the coal baron's ability to put his money where his mouth is. Meanwhile, a new Swiss bid for Northern Iron is rumoured to be rooted in Russia, and talks between Crown and Echo Entertainment are said to have shifted from joint venture to joint ownership.

Blackwood Corporation, Tinkler Group, Whitehaven Coal

There are new fears about Nathan Tinkler's ability to fund his costly tilt at Whitehaven Coal, amid reports the mining entrepreneur has delayed a smaller investment in coal explorer Blackwood Corporation.

Blackwood will soon address a two-week hold-up in settling a $28 million share placement to Tinkler, which was expected to have been completed within a week of shareholders approving the transaction on July 12. Tinkler intends to buy a 33.85 per cent stake in Blackwood for 30 cents a share – a 50 per cent premium at the time – via his private investment vehicle, Mulsanne Resources.

Blackwood has requested a trading halt until tomorrow, or when it is able to reveal more about the share placement and "a proposed debt funding arrangement." The latter is likely a backup plan, should Tinkler fail to foot the bill.

It's unwelcome attention for Tinkler, who has been struggling to shore up confidence in the financing of his proposed $5.25 billion privatisation of Whitehaven. At last count, a block representing 48.3 per cent of Whitehaven's register was said to have agreed to roll their scrip into the privatised entity, but Tinkler needs another 16.7 per cent to follow suit. That's a $900 million hole in the deal.

The last thing skittish Whitehaven investors want to hear is that their suitor is low on cash.

A spokesman for Tinkler told The Australian Financial Review the coal magnate expected to make the Blackwood payment within "the next few weeks”. He said the financing was unrelated to the Whitehaven deal, blaming the delay on the need to obtain funding from a third party.

Whitehaven shares yesterday fell 1.89 per cent to $3.64, which is well below Tinkler's $5.20-a-share bid.

Aditya, Northern Iron, Prominvest AG

Northern Iron seems to have built quite a profile overseas. The Australian-based iron ore hopeful has received yet another offshore approach, this time from Switzerland – and perhaps funded by Russians.

Prominvest AG, the Swiss trading group, has unveiled an initial $525 million cash offer for Northern, valued at $1.42-a-share. That trumps an earlier $1.40-a-share offer from India's Aditya Birla Group, which values Northern at about $518 million.

Interestingly, an unnamed source told The Australian Prominvest is backed by a Russian group. That's not necessarily a selling point considering Magnitogorsk Iron & Steel collapsed bid for Flinders Mines, and Mantra Resources' recent purchase by JSC Atomredmetzoloto, which reduced its offer by $150 million during the sales process.

The Swiss (Russian?) bid is conditional on due diligence, management meetings and site visits, according to Northern Iron. "The Prominvest proposal also includes a request for exclusivity which the board of directors will not agree to at this stage," the company said.

Northern, which has granted Aditya detailed stage-two due diligence, will consider Prominvest's proposal in the coming days.

Both bidders are pursuing Northern's promising Sydvaranger project in Norway, which produces about 2.1 million tonnes of iron ore a year. But the ASX-listed miner plans to more than double output to 5.6 million tonnes by 2016.

The auction follows Northern's appointment of Goldman Sachs last November to consider the miner's options, including a full sale. It has kept the investment bank on as an advisor.

Crown, Echo Entertainment, Genting

Yesterday, the rumour mill was spilling reports about a potential alliance between casino rivals Crown and Echo Entertainment in Australia's VIP gambling market. Today, there's talk that deal discussions might run deeper.

In the Fairfax press, Elizabeth Knight reports Echo's board is aware of a plan floated by Crown and another Echo investor, Malaysia's Genting, to split ownership of the Echo three ways. Genting and Crown would each lift their existing 10 per cent stakes to 25 per cent, and minority shareholder would own the remaining 50 per cent.

Importantly, that would allow Crown's James Packer to use Echo's exclusive Sydney casino to build a second complex at the city's Barangaroo development. It might also help Packer slip a representative into Echo's boardroom.

While Echo's new chairman, John O'Neill, seems much more receptive to Crown's advances, Genting's plans are still unclear.

Sources told Fairfax Genting might agree to a three-way deal in exchange for a larger slice of Echo's Jupiters casino on the Gold Coast. Alternatively, the Malaysian group might choose to launch a full takeover.

For any of this to eventuate, of course, Genting and Crown still need regulatory approval to lift their interests in Echo above 10 per cent. Rulings are expected by the end of the year.

China Eastern, Japan Airlines, Qantas Airways, Vietnam Airlines

As Qantas Airways apparently progresses code share talks with Middle Eastern airline Emirates, the Flying Kangaroo appears to have suffered a joint venture setback closer to home.

The Australian Competition and Consumer Commission has asked Qantas for extra information about its plan to cooperate more closely with Jetstar-branded airlines in Asia, according to The Australian. The regulator apparently wants a list of routes on which overlap occurs between the Qantas Group and Jetstar Asia networks, as well as with joint venture partners Vietnam Airlines, Japan Airlines and China Eastern.

Qantas has previously warned that a red light from the ACCC would affect its order of 110 Airbus 320s. It also touted deal as being a benefit to consumers.

Wrapping up

The NSW government's second round of power privatisation is heating up, with TPG Capital, Blackstone, AGL Energy, TRUenergy and Origin Energy all apparently lining up to take a look at the assets, according to The Australian Financial Review.

The report comes as NSW Liberal Premier Barry O'Farrell begins a tour of China in an effort to encourage investment in the $40 billion worth of infrastructure assets that will soon become available in the state.

What's Tony Abbott to make of that?

In company news, Seven West Media says it enjoyed strong demand from institutional investors as part of a $440 million capital raising aimed at paying down debt. The media company has issued 195.9 million fully paid ordinary shares to institutions, raising about $259 million.

The next stage of the raising, which has thus far increased the number of Seven securities from from 666.1 million to 862 million, will be a retail share sale at $1.32 a piece. Seven is hoping for another $180 million.

Seven was advised by Commonwealth Bank of Australia, Goldman Sachs, JP Morgan and UBS.

Elsewhere, analysts continue to fret over the debt positions of iron-ore exposed firms, as the price of the commodity shows continued weakness. Yesterday, Fortescue Metals Group was in focus, today it's Arrium.

The iron ore price has fallen about 15 per cent over the past fortnight, last week breaching the psychologically important $120-a-tonne barrier. That was widely considered to be a price floor.

Arrium would be in danger of breaching its debt covenants in the 2013 financial year if the price of iron ore averaged below $115 a tonne, according to a note from CLSA cited in The Australian Financial Review.

At $US110 a tonne, Arrium's interest cover would be 3.4 times, which is within the company's covenant range of between 3 and 3.5 times, according to the report.

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