Yancoal’s Chinese parent Yankuang in bid to mop up coal miner’s minority investors
Yankuang Energy is considering making a bid to take full control of Yancoal – but the offer appears to undervalue Australia’s biggest listed coal miner.
Yancoal’s Chinese parent company is considering a $US1.8bn ($2.5bn) bid to but the company remaining shares in what could be the first major test of foreign investment rules for incoming Labor government.
Yankuang Energy Group told the Hong Kong Exchange on Wednesday night it was considering offering convertible bonds to mop up the 37.7 per cent stake in Yancoal it does not own, planning to offer $US3.60 a share – about $5.08 at current exchange rates – to Yancoal shareholders
The notes could be converted to Yankuang shares on the Hong Kong exchange at a future date, the company said. Alternatively, Yancoal holders could elect to hang onto the bonds and take fixed interest and principal repayments over time, Yankuang said.
The Hong Kong-listed energy major may only have to convince three major Yancoal shareholders to take its scrip through the offer to win all-but total control of the company, given only about 10 per cent of Yancoal’s ASX-listed shares are held by institutional or retail investors.
But that may not be easy, given Yankuang’s $US3.60 a share valuation is well below the $6.08 the company last traded at on the ASX, which currently values the minority holdings in Yancoal at about $3bn – about $500m above the Yankuang offer.
While thermal coal prices have fallen slightly this week to trade around $US400 a tonne, they are still extraordinarily high, and ASX-listed coal companies are generating massive amounts of cash as a result.
Yancoal’s Australian coal mines threw off about $1.9bn in operating cash flow in 2021, when the company realised an average price of only $134 a tonne for its thermal coal. At current coal prices, the rivers of cash from its Australian operations will only be flowing stronger.
Yancoal booked a $791m net profit for 2021, a remarkable turnaround from the $1.04bn net loss from the previous year.
Yankuang already owns 62.3 per cent of Yancoal, Australia’s biggest listed coal miner. China Cinda Asset Management owns about 15.9 per cent of Yancoal stock, with Glencore holding 6.4 per cent and China Shandong Investments 5.4 per cent.
Acceptance by all three would take Yankuang to just under the 90 per cent threshold needed to acquire the rest of Yancoal stock through compulsory acquisition rules. Yancoal called a halt to trading in its shares early on Thursday ahead of a “potential material transaction”, and the takeover bid will present 3400 or so retail shareholders with something to consider ahead of the company’s annual meeting in Sydney on May 30 – when Yancoal is due to make a statement to the market.
But the acquisition may also pose the first major test of relations for Anthony Albanese, given Yankuang is a listed arm of state-owned groups and would need the approval of the Foreign Investment Review board – and a sign-off from Treasurer Jim Chalmers – to close the transaction.
Shaw and Partners analyst Peter O’Connor noted that the share price of ASX-listed coal miners was not reflecting the cash being generated by their operations, saying it was unsurprising to see a move to take a major miner off the market.
“If the equity market won’t price these companies reflecting the future value of cash flows, then they should be taken private – a thematic we have suggested for some time,” he said in a client note. “We take this first-pass potential approach by Yankuang as opportunistic, given the pitch at a 20 per cent discount.”
Even if Yankuang were able to cut a deal with Yancoal’s two other major Chinese shareholders, he said, the company may struggle to convince Glencore and retail shareholders to sell into its offer. Yancoal shares last traded at $6.08.