Australia Rules Yanzhou Coal Can Move to 100% Yancoal Ownership

Australia ruled China’s state-owned Yanzhou Coal Mining Co. (1171) doesn’t need to cut its stake in local unit Yancoal Australia Ltd. (YAL) to below 70 percent and instead can move to 100 percent ownership.

“Significant challenges” have emerged in the coal industry since the ownership conditions were imposed in 2009 as part of a takeover, Treasurer Joe Hockey said today, according to an e-mailed statement. “The government has no in-principle objection to 100 percent 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,”

Yanzhou Coal, China’s fourth-largest producer, won Australian regulator approval in 2009 for its purchase of Felix Resources Ltd. for A$3.3 billion ($3 billion) on condition it listed the assets in Australia and reduced its stake to less than 70 percent. The conditions also provided Yanzhou, which owns 78 percent of Yancoal, with the ability to seek the treasurer’s approval to vary these conditions, Hockey said.

The coal industry is experiencing “slowing demand, declining coal prices and a number of mine closures,” he said.

Last year, Yanzhou Coal bought Gloucester Coal Ltd. and merged it with Yancoal. The combined entity kept Gloucester Coal’s listing and trades in Sydney with a market value of A$651 million. After the Gloucester Coal deal, Yanzhou Coal was given a deadline of Dec. 31 to reduce its Yancoal stake.

Major Employer

“In commitments provided to me, Yanzhou has undertaken to continue to support Yancoal’s ongoing operations in Australia, thereby maintaining its position as a major regional employer,” said Hockey. “So long as Yanzhou continues to own at least 51 percent of the shares of Yancoal, Yanzhou will ensure Yancoal continues to operate so that it remains solvent.”

Yanzhou in July proposed to purchase the rest of the company from shareholders including Noble Group Ltd., a plan that ran counter to requirements from Australia’s Foreign Investment Review Board.

Yancoal operates seven mines in Australia’s New South Wales and Queensland states, and is a shareholder in two ports, according to its website.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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