Chinese bid major test for new Treasurer
Yancoal told the ASX its biggest shareholder, Yanzhou Coal, had expressed interest in buying the 22 per cent of Yancoal that it does not own with a view to removing its Australian listing.
The offer, valued at $151 million, was too preliminary on Tuesday to constitute a formal offer, but the idea is sufficiently developed for Yancoal to publish the possible terms and to have advisers appointed.
Yancoal shareholders would be offered 0.91 CHESS depository interests in Yanzhou for each Yancoal share.
The proposal appears to contradict elements of a foreign ownership ruling handed down by former treasurer Wayne Swan last year.
When asked to approve Yancoal's merger with ASX-listed Gloucester Coal, Mr Swan demanded the merged entity be headquartered in Australia, operate with a mostly Australian staff and ensure its chief executive and chief financial officers reside in Australia.
He also demanded that Yancoal reduce its 78 per cent stake in the merged entity to less than 70 per cent, among a long list of demands.
BusinessDay expects Yanzhou will argue the parlous state of global coal markets means the Australian mines owned by Yancoal will be better served by being owned by a bigger company with lower debt ratios.
Yanzhou is listed on stock exchanges in Hong Kong, Shanghai and New York, and will argue it is far better able to raise funds through those markets than Yancoal. It will also argue the depository receipts may be a preferable asset for local shareholders.
Neither Mr Swan, Mr Bowen, nor the Treasury department - which houses the Foreign Investment Review Board - would comment on the proposal on Tuesday.
National Party MP Barnaby Joyce said the Yancoal decision would be a "test of the mettle of Mr Bowen".
Yancoal owns numerous coking coal and thermal coalmines near Newcastle in NSW, west of Rockhampton in Queensland and helps manage Yanzhou assets near Collie in Western Australia.
Yancoal's independent directors will discuss the non-binding offer with Yanzhou before making any recommendation to shareholders.
RBC Capital Markets analyst Chris Drew estimated the offer effectively valued Yancoal shares at 69¢. Any transaction would value Yancoal at more than $700million.
The proposed privatisation comes barely a year after the merged entity floated on the ASX as Yancoal. The listing was one of the biggest of 2012 and came after Yanzhou spent several years accumulating Australian coal companies such as Felix Resources, Syntech Resources and assets from the likes of Wesfarmers and IMC Resources.
The privatisation movements helped pushed the stock 3¢ higher to close at 73¢.
Frequently Asked Questions about this Article…
Yanzhou Coal has expressed preliminary interest in buying the roughly 22% of Yancoal it does not already own with a view to taking Yancoal private. The non-binding proposal — described as too preliminary to be a formal offer — would offer Yancoal shareholders 0.91 CHESS depository interests in Yanzhou for each Yancoal share. The announcement prompted advisers to be appointed while Yancoal's independent directors consider the possible terms.
The initial proposal was described as being valued at about $151 million (for the share block under discussion) and RBC Capital Markets estimated the offer effectively values Yancoal shares at about 69 cents each. Any full transaction would value Yancoal at more than $700 million, according to the analyst commentary in the article.
Yes. The proposal appears to contradict parts of a previous foreign ownership ruling by former treasurer Wayne Swan. When approving Yancoal’s earlier merger, Mr Swan required the merged entity to be headquartered in Australia, employ mostly Australian staff, have its CEO and CFO reside in Australia, and reduce Yanzhou’s stake from 78% to below 70%. Those conditions may be at odds with a move to delist and shift ownership.
BusinessDay coverage cited likely arguments from Yanzhou that weak global coal markets mean the Australian mines could be better managed within a larger company with lower debt ratios. Yanzhou could also argue that, because it is listed in Hong Kong, Shanghai and New York, it is better placed to raise funds through those markets and that Yanzhou depository receipts might be preferable for some local shareholders.
Yancoal’s independent directors will discuss the non-binding offer with Yanzhou before making any recommendation to shareholders. Because the proposal is preliminary and non-binding, the directors and then shareholders would need to consider any formal offer and its terms before accepting or rejecting it.
Decisions on foreign investment approvals involve the Treasurer and the Treasury department, which houses the Foreign Investment Review Board (FIRB). The article notes that neither Wayne Swan, Chris Bowen nor the Treasury commented on the proposal. National Party MP Barnaby Joyce said the decision would be a “test of the mettle of Mr Bowen,” signalling political scrutiny of the takeover.
Yancoal owns a mix of coking coal and thermal coal mines near Newcastle in New South Wales, operations west of Rockhampton in Queensland, and helps manage Yanzhou assets near Collie in Western Australia. These assets underlie Yancoal’s business and are central to any valuation or takeover discussion.
News of the proposed privatisation movements pushed Yancoal’s stock up about 3 cents to close at 73 cents in the report. Everyday investors should note the offer was preliminary and non-binding, watch for any formal offer terms, follow the independent directors’ recommendation, and consider foreign ownership and regulatory approval risks before making investment decisions.
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