Yanzhou’s Yancoal Plan Contrary to Approval, RBC Says

China’s Yanzhou Coal Mining Company Ltd.’s plan to de-list and buy the rest of its 78 percent-owned Yancoal Australia Ltd. unit is contrary to conditions imposed by the Australian government, Royal Bank of Canada said.

Yanzhou will offer 0.91 depository receipts for every Yancoal share it doesn’t already own, the Shandong-based mining company said yesterday in a statement. The proposal values Yancoal at 69 Australian cents, according to RBC, and values the 22 percent stake at A$151 million ($138 million), based on share prices before the initial offer was made.

Yanzhou bought Felix Resources Ltd. for A$3.3 billion in 2009 and Gloucester Coal Ltd. for A$2.05 billion in 2012 on government condition that Yancoal be traded in Sydney and the Chinese company cut its holding to less than 70 percent by the end of 2013. It appears far from certain that Australia’s foreign investment regulator would allow Yanzhou’s proposed transaction to take place, said RBC’s Chris Drew.

“Rather than have Yanzhou selling down its interest, Yanzhou is intending to take Yancoal private,” Chris Drew, a Sydney-based analyst with RBC said today in an e-mailed report. The proposed transaction moves Yancoal’s ownership in the opposite direction to that required by the Foreign Investment Review Board at the time of the Gloucester merger, he said.

Yancoal gained 4.3 percent to 73 cents at the close of trading in Sydney. Yanzhou fell 4.3 percent to HK$5.14 as of 2:43 p.m. in Hong Kong.

Start Talks

Australia’s Treasury, which is responsible for FIRB, doesn’t comment on foreign investment screening arrangements to particular cases, the department said in an e-mailed response to an inquiry from Bloomberg.

Yancoal’s independent directors are studying the proposal and will start talks with Yanzhou before making a recommendation to minority shareholders, the Sydney-based company said today in a statement.

FIRB, Australia’s foreign investment regulator, examines proposals by foreign entities to invest in the South Pacific nation and makes recommendations to the Treasurer. FIRB in 2009 blocked state-owned China Non-Ferrous Metal Mining (Group) Co. from taking control of rare earths developer Lynas Corp.

Yancoal, which closed at 70 cents on July 8, operates seven mines in Australia’s New South Wales and Queensland states, and is a shareholder in two ports, according to its website.

Yanzhou is advised by Citigroup Inc., while Yancoal’s independent directors are advised by Lazard Ltd. and Blackstone Advisory Partners LP.

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