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 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¢.
Frequently Asked Questions about this Article…
Yanzhou Coal, Yancoal's biggest shareholder, has expressed interest in buying the roughly 22% of Yancoal it does not already own with a view to removing the company from the ASX. The proposal is still preliminary and was described as too early to be a formal offer.
Yanzhou indicated Yancoal shareholders would be offered 0.91 CHESS depository interests in Yanzhou for each Yancoal share. The preliminary proposal was described as valuing the offer at about $151 million and was estimated by RBC Capital Markets to effectively value Yancoal shares at about 69¢, placing the total transaction value at more than $700 million.
Yes. The proposal appears to contradict elements of a previous foreign ownership ruling from former treasurer Wayne Swan, who required the merged entity to be headquartered in Australia, to operate with a mostly Australian workforce, to have its CEO and CFO in Australia, and to cut Yanzhou’s stake from 78% to less than 70% when approving the earlier merger.
BusinessDay expected Yanzhou to argue that weak global coal markets mean Australia’s mines would be better served by ownership under a larger company with lower debt ratios. Yanzhou would also point out its listings in Hong Kong, Shanghai and New York make it easier to raise funds, and that depository receipts could be a preferable asset for local shareholders.
As of the report, neither former treasurer Wayne Swan, current treasurer Chris Bowen, nor the Treasury department (which houses the Foreign Investment Review Board) would comment on the proposal. National Party MP Barnaby Joyce said the decision would be a 'test of the mettle' of Treasurer Bowen.
At this stage the offer is non-binding and preliminary. Yancoal’s independent directors will discuss the potential terms with Yanzhou before making any recommendation to shareholders. The stock moved up 3¢ to close at 73¢ on the day the proposal was disclosed.
Yancoal owns multiple coking 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. Those assets would be part of the private ownership structure if the deal proceeds.
Investors should watch whether Yanzhou lodges a formal offer, the outcome of discussions by Yancoal’s independent directors, any statements or decisions from Treasurer Chris Bowen or Treasury/FIRB about foreign ownership conditions, and official valuation updates or changes to Yancoal’s ASX listing status.
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