Financial uncertainty at commodities trader Noble Group, Yancoal’s second largest shareholder, has raised fears that the Chinese coal miner’s deal with Rio Tinto may be unviable.
Yancoal’s majority shareholder the Chinese Government’s Yanzhou Coal has said it will contribute barely US$1 billion to the almost US$3.2 billion equity raising efforts for the deal, Noble will find it “difficult” to raise funds according to agency Standard & Poors as it downgraded the company’s credit rating.
For the acquisition to go ahead, and to avoid the dilution of its stake in the miner, Noble is expected to have to contribute around US$320 million.
When questioned about Noble’s ability to even participate in the fund raising, Standard & Poors’ lead analyst Danny Huang said that it would all depend on Noble finding a solution to their debt and liquidity issues.
“Looking at the status quo then we think it will be difficult, but I think they must be working on those options to deal with their liquidity issue,” he said.
Huang has previously said that Noble may default on their debts within the year.
Yancoal currently carries five times as much debt as its comparable competitors, and it has not posted a profit in the last four years. Since 2012, Yancoal investors have lost 17.7 cents for each dollar they have put into the company, following $1.3 billion of losses.
In addition, several security analysts have warned that increased Chinese influence over Australian coal exports could have long-term geostrategic ramifications for the region, potentially threatening Japanese and Korean energy security.
China itself has confirmed that the Yancoal deal would give it a ‘big say’ in the price of Asia-Pacific coal.