The Australian is reporting that a decision by the Foreign Investment Review Board on Yancoal’s proposed takeover of Coal & Allied is due as early as today.
It is also coinciding with the visit of Chinese Premier Li Keqiang to Australia, which is seen by many as a move by Beijing to pressure the Australian Treasurer to approve the deal.
What do you need to know ahead of the decision? Here are five key facts.
1. Chinese owned Yancoal is debt heavy despite a coal price boom
Yancoal, a miner controlled by the Chinese government, is looking to buy up coal assets in the Hunter Valley, as well as a major stake in the world’s largest coal port in Newcastle.
It recently announced that it has suffered another loss of $227 million between 2015 and 2016. This now totals $1.7 billion in losses over the past four years.
The company is also carrying significant debt of $5.7 billion, and has a debt to equity ratio five times larger than its major competitors.
2. Yancoal’s ongoing losses mean it won’t pay tax on the assets for years
Yancoal has announced that if it succeeds in acquiring the Coal & Allied assets it will not pay corporate income tax on them for years.
The assets are estimated to be worth $100 million a year in corporate income tax, but Yancoal can offset this against the $1.7 billion of losses it has racked up over the last four years.
3. China’s Yancoal would have the single largest stake in Newcastle Port
Newcastle Port is the world’s largest coal terminal with over 117 million tonnes of coal being exported every year to mainly Japan, Korea and Taiwan.
Yancoal’s takeover of Coal & Allied would give it a major stake in controlling the port’s operations with concerns raised they could use the port fees to recoup debt and losses.
4. The deal would give China power over Asia-Pacific price setting
Chinese miner Yancoal has said its purchase of Rio Tinto’s Australian thermal coal mines will give the organisation power over price-setting in the Asia-Pacific market.
Jin Qingbin, the board secretary of Yancoal’s parent company Yanzhou, said that the deal will allow the Chinese company to “take a leading role” in “Japan/Australia thermal coal negotiations”.
The Yancoal deal is expected to give China greater geopolitical influence over Japan and Korea’s energy security.
5. Australia is wary about strategic takeovers
The influential head of Australia’s Foreign Investment Review Board (FIRB) has warned investors not to target “business icons” in a clear sign of the Government’s growing concerns over foreign investment.
The Treasurer Scott Morrison has said that the system must ensure decisions were “made in a way that does not compromise Australia’s national interest”.