Chinese giant Yanzhou Coal Mining's plans to take full control of its Australian offshoot Yancoal could face a potential roadblock from the Foreign Investment Review Board.
Yanzhou, which already owns 78% of the local miner, has approached Yancoal with a proposal to fully privatise the company.
RBS Morgans senior analyst Tom Sartor said the full takeover may be the best move for Yancoal, which has seen its share price slide significantly since its listing last year, in line with falling coal prices (see Tim Treadgold's Cheap coal ignites energy battle).
But the privatisation would need FIRB approval which could be problematic, given the board previously insisted Yancoal list in Australia, Mr Sartor said.
FIRB approved Yanzhou's 2009 takeover of Felix Resources, which led to the establishment of Yancoal, on the condition the company list on the ASX.
"It (the full takeover) is probably the neatest solution but whether or not FIRB will allow them to do it is another story," Mr Sartor said.
Yancoal became Australia's largest listed coal company when it debuted on the ASX in June 2012, following its takeover of Gloucester Coal.
But the company has seen its shares slide from a listing price of $1.50 to as low as 63 cents in May.
Yancoal shares were trading at 74 cents on Tuesday afternoon, up four cents since before the privatisation proposal was announced.
Mr Sartor said that while the fall in the coal price had hurt the company's stock price, local investors were also turned off by its debt levels.
"It's gearing levels are off the charts. It holds $3.6 billion worth of debt, which is almost the equivalent value of its assets."
In a statement on Tuesday, Yancoal's board of directors said they were considering the non-binding proposal.
"The Yancoal Independent Board Committee is undertaking appropriate due diligence investigations to enable it to assess the proposed terms of the proposal and will engage in discussions with Yanzhou before making a recommendation to shareholders," it said.
Yancoal operates a number of coal mines across the Hunter Valley, the NSW central west and Queensland's Bowen Basin.