The level of Australian shareholder in the Chinese-controlled Yancoal Australia (YAL) will dwindle to less than 2% if a surprise $A3.2 billion recapitalisation deal, revealed yesterday, goes ahead.
The Chinese group, which owns 78% of Yancoal, has agreed to invest $A1.8 billion in the rights offer by subscribing to its full entitlement but will not make up any shortfall, Yancoal said. Yanzhou will provide an extra $A1.4 billion support in loans.
If the issue succeeds, Yancoal Australia will need to find more than $140 million a year to pay the interest bill, which given the weak price for coal, won’t leave any room for paying dividends to ordinary shareholders.
Yanzhou Coal has a 78% stake in the locally listed company, Yancoal Australia, but that will rise to “approximately 98.8 per cent” upon conversion if no other of Yanzhou’s shareholders take up their entitlement to the issue.
Yancoal’s existing shareholders fled the company yesterday with the shares losing 27% in value to close at 16 cents, down 6 cents.
They understand the issue holds the threat of an effective privatisation fo Yancoal Australia by the parent and its Chinese based banks.
YAL 1Y – Chinese parent to recapitalise Yancoal
Asian trading house, Noble Group retains a shareholding in the Australian company of just under 13%, and will be under pressure to accept the offer to maintain its stake, or face an extreme dilution of that holding. Noble blocked the earlier privatisation bid and will have to stump up around $A300 million to maintain its shareholding.
Earlier this year, Yancoal Australia abandoned a privatisation proposal after its other shareholders refused to accept a bid for their shares.
Yancoal operates seven mines in NSW and Queensland and is forecast to produce around 17 million tonnes of mostly thermal or steaming coal this calendar year.
The company reported a post-tax loss of $A192.7 million in the six months to the end of June 2014 on revenues of $A654.6 million. It had total liabilities of $A6.1 billion and net assets just under $A1 billion.
But as yesterday’s statement makes clear, the local company and its Chinese parent, have been hit hard by the slump in global coal demand and prices (especially in China where coal imports are down 20% from a year ago).
Yesterday’s statement that Chinese-owned coal miner Yancoal, which has a listing in Australia, is trying to raise $US2.3 billion through a subordinated capital notes offer to repay debts owed to its major shareholder.
Yancoal, which owns seven mines in Australia, will also be fed up to $1.4 billion by majority shareholder Yanzhou Coal, to prop it up during a dismal time for the coal industry.
Yanzhou has also given an undertaking that it will "ensure Yancoal remains solvent", for as long as it remains majority shareholder.
Yancoal listed on the ASX in mid-2012.
Yancoal chief Reinhold Schmidt said the decision was taken to reduce gearing and "deliver significant cost savings to weather the challenges of an increasingly competitive marketplace".
“In a depressed commodities marketplace facing continued uncertainty for the near-term, Yancoal’s existing level of debt is a significant constraint on our future expansion and operational improvement strategies," Mr Schmidt said.
"Yanzhou’s support for the Offer and associated additional funding commitment, demonstrate its continued long term investment in Australia, and provides greater certainty for our more than 2000 employees and the communities in which we operate.
"The issuing of Subordinated Capital Notes is one part of a broader package of balance sheet strengthening and funding initiatives overseen by an IBC on Yancoal’s behalf. The IBC has assessed the benefits of the Offer and intended use of proceeds to ensure that the transaction is in the best interests of Yancoal. It has made this assessment on an ‘arm’s length’ basis from major shareholders Yanzhou and Noble Group.
As we continue to operate to the highest safety, environmental and production standards, I believe this Offer will provide Yancoal with a stronger balance sheet, from which we can build a sustainable future of beneficial returns for our shareholders,” he said.
Under the renounceable rights offer, Yancoal will issue 2.32112 subordinated capital notes for every 100 Yancoal Australia shares held – up to a value of $US2.3 billion. The notes will be treated as equity.
About $US1.8 billion of proceeds will be used to repay existing senior debt from Yanzhou. The balance will be used at Yancoal’s suite of existing coal mines and future growth.
The coal miner also said on Monday that Yanzhou will provide up to $1.4 billion in extra finance, and it will support fund distributions on the subordinated capital notes over a five year period, after they are issued.
Yancoal said that if the offer proceeds, Bank of China and China Construction Bank will grant an extension on the repayment of their $US2.6 billion syndicated facility for three years.