The Australian Financial Review has reported that “Rio Tinto’s board will meet on Tuesday morning to consider Ivan Glasenberg’s $US3.47 billion ($4.56 billion) attempt to disrupt Yancoal Australia’s acquisition of the Anglo-Australian’s last and best outpost in Australian coal, Coal & Allied.
The unscheduled London board meeting, whose outcome remains the subject of deep uncertainty, follows a long weekend of face-to-face meetings between senior Rio management and a Glencore team led by its global coal boss, Sydney-based Peter Freyberg.
Rio invited Freyberg to the unanticipated London sessions in a formal letter sent last Wednesday and Glencore’s man of coal responded immediately, cancelling a local speaking engagement and heading directly to Britain.
As you might expect, Rio requested the discussions to fully digest the detail of Glencore’s last-ditch attempt to interrupt China Inc’s move into the rich mainstream of Hunter Valley coal.”
The AFR reports that “Glencore has offered $US2.55 billion for Rio’s controlling share in Coal & Allied, which operates two best-in-class coal mining hubs in the Hunter and a 36.5 per cent interest in the bigger of Newcastle two coal export terminals, Port Waratah.
The second $US920 million step in the Glencore proposal will see the other shareholder in Coal & Allied’s coal hubs, Mitsubishi, follow Rio out of the Australian coal business.
Interestingly enough, Yancoal has ended up offering Mitsubishi just that little bit more – $US950 million – to complete the tag-along transaction that sits as a requirement of the Japanese investor’s agreements with Rio.
But, at a headline level, the Glencore offer to Rio is demonstrably bigger than the $US2.45 billion Yancoal pitch that Rio accepted in January.”
As the Australian Financial Review understand it, “Glencore has already signalled a readiness to concede [to the regulators] whatever it takes of the terminal to ensure it ends up with Rio’s coal mines. And meanwhile, Freyberg has been reminding Rio that delay and completion risk sits heavy in the Yancoal corner too.
Just how Yancoal might step its way to financial completion continues to be a matter of conjecture and potential vulnerability.
Yancoal Australia boasts a market capitalisation of $300 million, it lost $300 million in 2016 and its accounts carry accumulated losses of $698 million and gross liabilities of $6 billion. But it is also the chosen vehicle for a long play in export quality Australian coal by China Inc’s emerging international coal champion.
Yancoal Australia is 86 per cent owned Yanzhou Coal which is, in turn, controlled by Yankuang Group Corporation Limited, a state-owned Chinese company. Pretty much all of the balance of the company is controlled by the deeply stressed Hong Kong listed trader Noble Group.
The accepted wisdom here is that Yancoal will need to raise new equity to finance its latest acquisition. But, given the precarious place Noble finds itself in, its capacity to sustain its share of whatever equity may be required looks doubtful indeed.
Either way, Glencore represents the uncertainty of Yancoal’s funding as a key risk for Rio and a timely completion of the deal that it purports to have trumped.”