Yancoal Plans $2.5 Billion Equity Raising for Rio Coal MinesBy
Shareholder Noble Group may challenge deal on dilution concern
Glencore will also contribute $300 million as part of deal
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China-backed Yancoal Australia Ltd. will raise $2.5 billion in equity to fund the purchase of Rio Tinto Group’s Australian coal assets, with its parent Yanzhou Coal Mining Co. tipping in $1 billion.
Glencore Plc, which will jointly operate some of Rio’s Coal & Allied operations in the Hunter Valley with Yancoal, will contribute $300 million. Two Chinese investment groups, China Cinda Asset Management Co. and Shandong Lucion Investment Holdings Group Co., committed a further $1 billion to the entitlement offer.
The Rio purchase will catapult Yancoal into becoming Australia’s largest pure-play coal producer and give it a stake in the owner of two terminals at the port of Newcastle, the country’s main conduit for thermal coal. The deal comes at a time when major consumers including China plan to curb use primarily due to environmental concerns.
“The strategic acquisition of Coal & Allied will redefine our position within the global coal marketplace and strengthen Yancoal Australia for the future,” Yancoal Chairman Xiyong Li said in a statement Wednesday.
The proposed equity raising may yet be challenged by Singapore-listed commodities trader Noble Group Ltd., which owns a 13.2 percent stake in Yancoal and won’t participate in the raising. It may lodge an objection with Australia’s Takeovers Panel over concern the deal will dilute the holding of minority shareholders, Noble said on Wednesday.
A similar objection was raised by Hong Kong-based hedge fund Senrigan Capital Group in June. Senrigan was concerned by the size of the financing needed for Yancoal’s Coal & Allied deal as well as the impact a planned equity raising would have on the value of stakes held by minority shareholders.
The backing of Yanzhou, China’s fourth-biggest coal producer that owns 78 percent of the Australia-listed unit, and two Chinese investment funds means the financing side of the deal looks solid despite Yancoal’s modest market capitalization of about A$400 million ($318 million), according to Fat Prophets resources analyst David Lennox. “If things went sour, there would be some back room negotiating” to help secure the terms of the transaction.
Yancoal declined 36 percent to 25 Australian cents at the close in Sydney, its biggest fall since listing in June 2012. Yanzhou gained 1.7 percent to HK$7.78 in Hong Kong.
Rio agreed to sell its Australian coal mines for $2.69 billion to Yancoal in June after a protracted battle with Glencore. Rio chose Yancoal because its offer was seen as having less regulatory hurdles despite some uncertainty over its financing of the deal. On July 27, Glencore announced a surprise $1.1 billion deal with Yancoal for a stake in the coal assets.