Yanzhou Coal, one of China’s biggest coal mining companies, is injecting $3.2 billion into its debt-laden Australian subsidiary Yancoal Australia Ltd to strengthen the company’s balance sheet and to pursue future growth opportunities.
According to the article on Domain-b, Yanzhou will extend a fresh $1.4-billion loan and subscribe to $1.8 billion rights offer of subordinated capital notes of the $2.3 billion fund raising.
Yanzhou decision to pump capital into Yancoal, where it already owns 78% of the stakes, is widely interpreted by investors as an attempt to take full control of the company.
It comes after another Asian-based investor in Yancoal Australia – the Hong Kong-based Noble Group – used its 13% stake in Yancoal Australia to block a proposed privatisation move by Yanzhou earlier this year.
According to Forbes, Noble now faces the prospect of contributing $300 million to Yancoal Australia to protect its 13% stake in the Australian company, but is yet to say whether it will, or whether it approves of the capital raising.
Yancoal said that $1.8 billion of the offer proceeds will go towards repaying existing loans from its major shareholder Yanzhou and improve the company’s capital structure and gearing ratio.
Any remaining proceeds will be used to part fund Yancoal’s exiting coal operations and further growth projects, including starting Stage II of its Moolarben Coal Complex joint venture.
The 50% collapse in the price of electricity-generating thermal coal – which dropped from close to $140 a tonne to around $70 a tonne – wiped out the profits of Yancoal Australia, a business built on two high-priced acquisitions in 2011 by Yanzhou which paid more than $5 billion for Felix Coal and Gloucester Coal.
Following these acquisitions, Yancoal was listed at more than $1.34 on the ASX in June 2012 – Australia’s largest listing since December 2010.
But the company has lost more than 85% of its value since its listing and is now trading as low as 16.5 cents, giving it a market cap of less than $160 million.