* Deal appears to run counter to FIRB requirements
* Yanzhou required to own under 70 pct of Yancoal by end
* Yanzhou to argue deal is in Australia's national interest
* Many Australian coal assets on the block
* China investments in Australia may come under more
By Jackie Range
SYDNEY, July 9 China's Yanzhou Coal Mining
Company Ltd has proposed taking its Australian unit
private for around $180 million, a deal that would give it more
control over a key coal asset but which is expected to face
stiff opposition from regulators.
The proposal for Yanzhou to buy the 22 percent of Yancoal
Australia Ltd it does not own appears to run counter to
previous requirements it be run as an Australian company. It
also comes at a time when sensitivity over Chinese firms buying
foreign assets is high.
Yanzhou, China's third biggest coal firm by market value, is
now talking with the Australia's Foreign Investment Review Board
and is making the case that the deal is in Australia's national
interest as many resource assets are now on the block, said a
source close to the proposed deal.
"The market has fundamentally changed over the course of the
last four to six months and if you look around Australia today
there's an innumerable number of assets for sale," the source
said, declining to be identified as the talks are confidential.
"In that kind of environment you want to be encouraging
investment in this sector as much as you can, and if someone's
putting up their hand to privatise an asset that they say they
are committed to developing and maximizing employment, in this
environment, I think that is compelling."
The FIRB approved Yanzhou's $3.5 billion bid for Australian
coal miner Felix Resources Ltd in 2009 with strict conditions,
including that it operate its Australian mines through an
Australian company, list the unit by the end of 2012 and reduce
its ownership to less than 70 percent by the end of this year.
Given the u-turns that the FIRB would have to make in order
to approve the deal, some analysts doubt that it will proceed
and that scepticism was reflected in its share price.
Shares in Yancoal closed 4.3 percent higher at A$0.73 but
were far off Yanzhou's proposed purchase price of A$0.91 - a
price that values Yancoal at A$905 million ($825 million). Hit
by a slide in coal prices, Yancoal's stock has lost around half
its value since its listing in June 2012.
"We would be surprised if the FIRB was this forgiving and
therefore if the market recognised that this deal may actually
happen," said Tom Sartor, an analyst with RBS Morgans in
The FIRB didn't immediately respond to requests for comment.
A Yanzhou spokeswoman declined to comment.
China has stepped up its investments in Australia as it has
elsewhere. Chinese investors last year bought Australia's
biggest cotton farm Cubbie Station and Shanghai Zhongfu Group
has approval to invest around A$700 million in a sugar farm
project in northwest Australia.
Australia could significantly tighten scrutiny of foreign
investment in farmlands, amid concerns of growing interest from
China, if conservative opposition parties win September
elections as expected.
Chinese telecoms equipment firm Huawei Technologies Co Ltd
has also been barred from a $38 billion project in
Australia due to cyber security concerns.
But law firm Clayton Utz estimates that completed Chinese
investments in Australian energy and resources probably add up
to "considerably less" than 10 percent of the total value of
such projects. Yanzhou's $3.5 billion purchase of Felix
represents the China's biggest coal investment in Australia to
For Yanzhou, potentially gaining complete control of Yancoal
at a time when coal prices have weakened considerably is an
opportunity too good not to have a stab at.
"They probably have a good feel of where coal demand is
going, especially being based in the world's largest consumer of
coal and they probably think they are picking up additional coal
supply at a very cheap price," said Andrew Harrington, an
analyst with Patersons Securities in Sydney.
There are a number of Australian coal assets on the block -
some of which are seen by bankers and analysts as deals that
will be tough to complete amid falling coal prices.
"It's pretty tough getting coal assets away at a half
reasonable price at the moment. It's a buyer's market not a
seller's market and there aren't that many buyers around with
money," said Paul McTaggart, an analyst at Credit Suisse.
Resources giant BHP Billiton is looking to offload
the Gregory Crinum coal operation in Queensland, which it
jointly owns with Japan's Mitsubishi Corp. Global miner
Rio Tinto is also looking to sell its Clermont coal
mine and a 29 per cent stake in its Coal & Allied business.