Australia Rules Yanzhou Can Move to 100% Yancoal Ownership

Australia ruled China’s state-controlled Yanzhou Coal Mining Co. doesn’t need to cut its stake in local unit Yancoal Australia Ltd. 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 regulatory 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.

Yancoal gained 9.9 percent, the most in seven months, to 72 cents at the close of trading in Sydney. Yanzhou fell 2.7 percent in Hong Kong at 1:22 p.m. local time.

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 at the close today of A$716 million ($654 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. The Chinese parent’s proposal valued the remaining 22 percent stake at A$151 million based on share prices before the initial offer was made, RBC Capital Markets said at the time.

Yancoal’s independent board committee is in talks with Yanzhou about the treasurer’s decision and how the parent company plans to proceed in terms of its privatization proposal, the Australian unit said today in a separate statement.

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

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