Treasurer Chris Bowen could soon face his first major foreign ownership test, after the nation's biggest pure-play coal miner revealed that Chinese shareholders want to take the company private in a way that would be at odds with the government's foreign ownership rulings.
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 coal mines 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¢.