Yancoal is facing a tough task to build its financial war chest to spend $3 billion on Rio Tinto’s Hunter Valley coal assets, but deal-makers are questioning the response regulators will deliver.
The market remains doubtful that debt-laiden Yancoal’s proposed $2 billion capital raising will gain any traction with large institutions will likely to remain on the sidelines.
On top of financing doubts, worries are cascading through the market about how the Foreign Investment Review Board (FIRB) will view the proposed takeover. The board has view previous port bids as a potential national security risk, and the new bid from Yancoal includes a significant stake in the world’s largest coal export port in Newcastle.
The Chinese Communist-party backed bid from Yancoal will need to be scrutinised more heavily, especially since former ASIO chief David Irvine was appointed to the board a year ago.
His seat at the table was interpreted by many in the market as a signal that corporate bids from mainland China will be subjected to much more scrutiny than had occurred in the past.
FIRB has traditionally delivered a recommendation within 30 days, which then had to be approved by the federal treasurer.
The Federal Government has recent taken decisions to end a number of Chinese investment deals, including bids for Kidman Station and State Grid last year. Market insiders have said that Chinese companies have boosted their lobbying activities and spending with GRA Cosway chief executive Les Timar emerging as a key negotiator between the Chinese side and Australian regulators and investors.
The Sydney-based firm has strong federal links given it is co-chaired by former Labor Treasurer John Dawkins.