UPDATE 3-Australian tycoon Tinkler sells out of Whitehaven Coal

Wed Jun 19, 2013 5:00am EDT

* Lenders swap Tinkler debt for 20 pct stake in Whitehaven

* Hedge fund Farallon becomes top shareholder

* Farallon in no rush to sell down stake-source

* Coal assets plentiful in weak market-analysts

* Whitehaven shares jump 9 pct

By Sonali Paul

MELBOURNE, June 19 (Reuters) - Australia's Nathan Tinkler has handed his stake in Whitehaven Coal Ltd to lenders to pay off most of a $634 million debt, in a deal that may eventually put one of the country's biggest independent coal miners into play.

But the funds now owning a fifth of Whitehaven are unlikely to sell anytime soon, as they are sitting on a paper loss on their loan to Tinkler and won't get back their money without a big recovery in the coal market.

Tinkler swapped his Whitehaven stake to a syndicate led by U.S. hedge fund Farallon Capital Management, which had lent him $634 million, leaving him with a rugby league team and soccer club in Australia and other business interests in Australia and Singapore.

Farallon picked up 9.9 percent of Whitehaven, increasing its holding to 16.6 percent, while others in the syndicate bought the rest of Tinkler's stake, Whitehaven said on Wednesday.

While a range of suitors have looked at Whitehaven over the past three years, finding a buyer now would be difficult as several superior coal assets are already on the block from majors led by Rio Tinto and BHP Billiton.

"No lender wants to be holding the collateral. But the market is tough, the resources space is difficult -- the coal space is especially so," said Andrew Harrington, an analyst at Patersons Securities.

"Their best interest would be to watch the shares appreciate in value. There's no benefit for them in dumping the shares," he said.

The shares would have to trade above A$3.00 for the lenders to get their money back. And with Farallon having acquired its initial 5 percent stake in Whitehaven in April 2012 when the shares were worth around A$5.50, it is sitting on a big loss.

The stock last traded at A$2.20, after jumping nearly 10 percent to a one-month high of A$2.31 as investors welcomed Tinkler's exit. The shares had been depressed for some time on speculation he would be forced to dump his holding.

Farallon plans to wait for the stock to trade well above A$3.00 before deciding its next move, said a person familiar with the situation, who declined to be named.

"Farallon looks forward to growth in shareholder value over time," the hedge fund said in a U.S. announcement.

CROWDED MARKET

Analysts say coal prices, down about 30 percent over the past 18 months, are unlikely to recover soon, with supply outstripping demand.

And in a market crowded with majors trying to sell coal assets, it would be tough to find a buyer for Whitehaven at the moment, especially since its best asset, the Maules Creek project, has yet to secure development approval.

"We have to think the outlook for coal in the near-to-medium term is not rosy, so I really question the attraction from a pure valuation stance," said Ric Ronge, a portfolio manager at Pengana Capital.

Suitors who have looked at Whitehaven include Indian conglomerate Aditya Birla, Tinkler himself, and most recently China's biggest coal producer, Shenhua Group.

Peabody and China's Yanzhou Coal previously bid for Whitehaven, but have since made big acquisitions in Australia and are suffering in the coal slump.

Tinkler, whose wealth was largely tied to his Whitehaven stake, has been under pressure as coal prices have tumbled. His stake was worth A$1.1 billion a year ago, and on Wednesday he admitted he was a reluctant seller.

"While we are happy with the price we have received, being a 40 percent premium to the current market price...we feel strongly that this still significantly undervalues the company's underlying asset base," Tinkler Group said in a statement.

"Many will be aware of the emotional attachment that Mr. Tinkler has to the assets of the company, specifically Maules Creek, and that selling this stake was a difficult decision."

The 37-year-old, who now lives in Singapore, has been the target of several lawsuits in Australia to recover millions of dollars in unpaid debts, with most of them settled out of court.

He put his thoroughbred racing and stud empire up for sale, and his private helicopter has been seized by creditors.

Even after the debt-for-equity swap with the Farallon led syndicate, he still owes them $100 million, maturing in 2014, said the source familiar with the situation.

Under the deal, if Whitehaven's shares trade above A$2.96 between January and March then he will be off the hook. If not, he will have to come up with the funds.

However, in a sign that he may be feeling more comfortable about his financial situation, the entrepreneur earlier this month bought back some of his own race horses at auction.

Whitehaven Chief Executive Paul Flynn said Tinkler's exit removed a big distraction for the board and management, who could now focus on developing Maules Creek. The company hopes to win federal approval for the project within a few weeks.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.