Hockey allows China control of coal assets
Contrary to an earlier decision that forced Yanzhou Coal Mining Co to maintain a local sharemarket listing of its Australian assets after paying more than $5 billion for control of a string of coalmines in Queensland and NSW, it has now been cleared to force out minority shareholders, if it wants to do so.
"Changing the conditions of the original acquisition oppresses the position of minority shareholders," one adviser close to the situation said on Wednesday, "especially since Yanzhou has given the government 'commitments', which have yet to be made public."
Yanzhou paid $3.3 billion for Felix Resources in 2009 and followed that up last year with the $2.2 billion acquisition of Gloucester Coal.
The government approved the purchase of Felix on the condition Yanzhou list its Australian operations on the ASX by the end of 2012, holding no more than an initial 70 per cent of the Felix assets, to be reduced by the end of 2014 to no more than 50 per cent.
Additionally, Yanzhou was to reduce from 100 per cent its ownership of two other coal assets, Premier Coal and Syntech.
Yanzhou holds 78 per cent of the ASX-listed Yancoal Australia, with Singapore-listed trader Noble Resources holding 13.16 per cent. Yancoal listed on the ASX in 2012, which gave Yanzhou a vehicle to part-fund any expansion. However, the downturn in the coal sector has forced Yancoal to slash costs while casting doubt that any expansion program will be pursued.
Yanzhou made public a proposal to buy out minority shareholders in July, offering 0.91 of its shares for every share held in Yancoal.
But that proposal has stalled, while Wednesday's decision by Canberra has put a cloud over the position of minority shareholders in Yancoal, since the Treasurer's decision appears to give the Chinese-owned entity the upper hand in dealing with minority shareholders.
Independent directors of Yancoal said on Wednesday they were "engaging" with Yanzhou, "including in relation to the commitments provided by Yanzhou to the Treasurer and how this impacts upon Yanzhou's privatisation proposal".
Earlier in the year, Yanzhou sought government approval to maintain unchanged its present 78 per cent stake in Yancoal Australia, which the government has now approved.
"The government has no in-principle objection to 100 per cent foreign ownership of Australian companies where it is not contrary to the national interest and is open to any such proposals from Yanzhou in the future," Mr Hockey said.
This is in contrast to the recent decision to block US company Archer Daniels Midland from buying GrainCorp, which prompted intense criticism from the business community that the government had caved in to pressure from its Coalition partner, the National Party.
In opening the door to full privatisation of Yancoal, the federal government noted the change in the coal sector's fortunes as prices have fallen as the strong Australian dollar has squeezed returns.
"The conditions imposed in 2009 also provided Yanzhou with the ability to seek the Treasurer's approval to vary these conditions if they were impacted by changes in economic conditions or other factors," Mr Hockey said.
"Since those conditions were imposed, significant challenges have emerged for the Australian coal industry, including slowing demand, declining coal prices and a number of mine closures."
Frequently Asked Questions about this Article…
Treasurer Joe Hockey approved the Chinese control of Australian coal assets because the government has no in-principle objection to 100% foreign ownership of Australian companies where it is not contrary to the national interest. This decision aligns with the government's openness to such proposals from Yanzhou in the future.
The decision by Treasurer Joe Hockey allows Yanzhou to potentially force out minority shareholders, which has put a cloud over their position. This move gives the Chinese-owned entity the upper hand in dealing with minority shareholders.
The original conditions required Yanzhou to list its Australian operations on the ASX by the end of 2012, holding no more than 70% of the Felix assets initially, and reducing this to no more than 50% by the end of 2014. Additionally, Yanzhou was to reduce its ownership of Premier Coal and Syntech from 100%.
The downturn in the coal sector has forced Yancoal to slash costs and cast doubt on any expansion programs. This is due to falling coal prices and the strong Australian dollar squeezing returns.
Yanzhou has given the government certain 'commitments,' although these have yet to be made public. These commitments are part of the ongoing engagement between Yancoal's independent directors and Yanzhou.
Yanzhou proposed to buy out minority shareholders by offering 0.91 of its shares for every share held in Yancoal. However, this proposal has stalled, and the recent decision by Canberra has affected the position of minority shareholders.
The government's decision on Yanzhou contrasts with its decision to block US company Archer Daniels Midland from buying GrainCorp. The GrainCorp decision prompted criticism that the government had succumbed to pressure from its Coalition partner, the National Party.
Since the original conditions were imposed, the Australian coal industry has faced significant challenges, including slowing demand, declining coal prices, and a number of mine closures. These factors have impacted the economic conditions of the industry.
Call 1300 880 160
Start a chat
Schedule a call
