Chinese miner Yanzhou Coal offers to privatise Australia's Yancoal

Chinese mining major Yanzhou Coal Mining Co Ltd yesterday proposed to privatise its wholly-owned subsidiary Yancoal Australia Ltd by acquiring the 22-per cent stake it does not own in the company, just a year after its Australian listing in June 2012.

Yanzhou, which owns a majority 78-per cent stake in Yancoal, has conveyed its interest by sending a non-binding proposal to Yancoal's board. The detailed terms of the proposed transaction are subject to further negotiation with Yancoal and are yet to be determined at this stage, the company said in a statement to the Hong Kong Stock Exchange.

It is proposed to offer approximately 0.91 Yanzhou CDIs for every Yancoal Australia share held by the minority shareholders. The shares underlying the Yanzhou CDIs would be Hong Kong-listed shares of Yanzhou.

Yanzhou will apply for a foreign-exempt listing of the CDIs on the Australian Stock Exchange and post acquisition, would delist Yancoal from the Australian Stock Exchange (ASX).

The conversion ratio was determined based on a value of A$0.91 per Yancoal share, representing a 30-per cent premium to 60-day volume weighted average price of A$0.70 per share for the stock and a value of HK$7.09 per Yanzhou share in Hong Kong.

Yanzhou said that its offer is subject to a number of conditions, including an independent expert concluding that the proposed deal is in the best interests of Yancoal minority shareholders, and regulatory approvals in Australia and China.

The deal, if implemented, will further increase Yangzhou's interest in the expandable operating mines of Yancoal and coal resources in Australia. The company will be better positioned in managing and operating a fully integrated business and delivering higher efficiency across its portfolio of businesses, the statement said.

In a separate statement, Yancoal said that an independent board committee of the company will commence due diligence and investigation on the proposal which would take some time and make a further announcement on reaching a conclusion.

Further to the news, shares in Yancoal surged 5.7 per cent to A$0.74 a share on today's morning on the Australian Stock Exchange. Yanzhou Coal stock was down 3 per cent at $HK5.32 in Hong Kong.

But most importantly, the deal has to be approved by Australia's Foreign Investment Review Board (FIRB), which had put stringent conditions on Yancoal when it acquired Felix Resources in 2009 for $3.5 billion.

As part of the conditions, Yanzhou, which has been operating in Australia since 2004, when it acquired the Southland mine in NSW for about $30 million, would operate its Australian mines through an Australian company Yancoal Australia Pty Ltd, and list it on the ASX by the end of 2012.

During this period, Yanzhou will have to reduce its ownership in Yancoal to less than 70 per cent. The management and sales team of Yancoal have to be mainly Australian and the company must have at least two directors living in Australia, of whom one should be independent.

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 around half its value since its listing and traded as low as 63 cents in May.