Yanzhou Coal to inject $2.8 bn in Australian subsidiary Yancoal
11 November 2014
Yanzhou Coal Mining Co Ltd is injecting $2.8 billion (A$3. 2billion) into its struggling Australian subsidiary Yancoal Australia Ltd, a move seen by minority investors as a plan by the Chinese mining major to take full control of the company.
Yanzhou, which owns 78 per cent of Australian stock exchange-listed Yancoal, will extend a fresh $1.4-billion loan and subscribe to $1.8 billion rights offer of subordinated capital notes of the $2.3 billion fund raising.
Yancoal is likely to get its single biggest minority shareholder, Hong-Kong-based commodities trading giant Noble Group with 13-per cent stake, to subscribe to the remaining $500 million and may issue new shares if existing investors do not fully subscribe to the recapitalisation offer.
Yancoal said that $1.8 billion of the offer proceeds will go towards repaying existing loans from its major shareholder Yanzhou and improve the company's capital structure and gearing ratio.
Any remaining proceeds will be used to part fund Yancoal's exiting coal operations and further growth projects, including starting Stage II of its Moolarben Coal Complex joint venture.
In addition to the fund raising, Bank of China and China Construction Bank will extend the repayment dates of their $2.6 billion loan for three years.
Since the notes will be treated as equity, some minority shareholders fear that Yanzhou is trying to take full control of the company through this debt-for-equity swap.
Reinhold Schmidt, CEO of Yancoal said that the recapitalisation is to strengthen the company's balance sheet, and to pursue future growth opportunities and not a fresh bid by Yanzhou to privatise the company.
Last year, Chinese state-backed Yanzhou offered to privatise Yancoal by acquiring the 22-per cent stake it does not own in the company, just a year after its listing in June 2012. (See: Chinese miner Yanzhou Coal offers to privatise Australia's Yancoal)
But the bid was blocked by Noble Group, which said that it would not support the takeover.
Following its $2.1-billion acquisition of Gloucester Coal, Sydney-based Yancoal was listed at more than $1.34 on the ASX in June 2012, in what was Australia's largest listing since December 2010.
But the company has lost more than 85 per cent of its value since its listing and is now trading as low as 16.5 cents, giving it a market cap of less than $160 million.
It posted a loss of A$832 million last year on revenues of A$1.5 billion, and reported a post-tax loss of A$192.7 million in the six months to the end of June 2014 on revenues of A$655 million.
With heavy investments over the past 10 years by coal miners, the industry has been going through a prolonged slump because of oversupply.
Thermal coal, used by power stations, is currently trading at $64.50 a tonne compared to a peak of $137.53 a tonne in February 2011, while coking coal used to run steel plant furnaces, is at $119 a tonne compared to $330 a tonne in 2011.