Glencore rebuff sets up less noxious coal deal

Cinda International Holdings

06/06/2022 01:57

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Antony Currie
    MELBOURNE, June 2 (Reuters Breakingviews) - It’s almost
taboo to cheer on investors in coal. Climate change has made
such types near-pariahs, while the energy crisis has filled
their pockets: At $400 a tonne, the fossil fuel’s price has
risen almost fourfold in a year. But Glencore  GLEN.L  deserves
some credit for pitting a strong defence for minority
shareholders in the largest listed coal miner Down Under.
    China’s Yankuang Energy  600188.SS  made a tentative
approach to buy the 38% of Yancoal Australia  YAL.AX  it doesn’t
already own for $1.8 billion. On Thursday Reuters reported
 urn:newsml:reuters.com:*:nL1N2XP085 that the Swiss commodity giant, which owns 6.4% of
Yancoal, reckons the offer is “unacceptable” and “significantly
undervalues” the company. 
    That’s a polite understatement: The proposed transaction
emits some noxious gas. Instead of opening the haggling by
offering a traditional cash premium, Yankuang is proposing a 5%
discount to Yancoal’s ASX closing price and 10% to its Hong
Kong-listed shares when the offer landed at the end of April.
That might be justifiable if the stock had risen on rumours of a
buyout, but it didn’t. In fact, both companies have notched up
an almost 200% total return for shareholders in the past 12
months. 
    Moreover, the Shandong province-based company wants to pay
with a bond convertible into Yankuang’s Hong Kong shares, once
these have risen by at least half. In the interim it might pay
an annual coupon of 5%, estimates Aitken Mount Capital Partners,
but that’d have to be roughly 20% to match the dividend
Yancoal’s minority shareholders would have to forfeit this year,
Breakingviews calculates. 
    Some of the other Chinese shareholders may be easier to
persuade: Fellow state-owned enterprises Cinda International
 0111.HK  and Shandong Lucion Investment hold some 20%. But that
still would leave the buyer shy of the more than 90% threshold
set by both the ASX and the Hong Kong bourse to be able to force
remaining shareholders to sell. 
    There’s political risk, too: A 2012 Canberra edict
stipulated Yankuang had to keep its Yancoal shareholding below
70%. With tensions high between the China and Australia, it’d
require some large incentives from Beijing for Australia’s new
Labor government to consider looking past the additional foreign
investment. 
    Fighting that battle, though, requires getting the
financials right first. Glencore may have just helped make those
less toxic.
    Follow @AntonyMCurrie https://twitter.com/antonymcurrie on
Twitter
         
    CONTEXT NEWS 
    Glencore is likely to reject an offer by Yankuang Energy to
buy out the minority shareholders of Yancoal Australia as too
low, Reuters reported on June 2, citing two sources with
knowledge of the matter. The offer is "unacceptable" for the
commodities giant, which owns 6.4% of Yancoal, and
"significantly undervalues" the company's stock, the report
added. 
    Yancoal, Australia’s largest listed coal-mining company, on
May 30 said it has set up special committee of its three
independent board members to consider the offer. Yankuang Energy
already owns 62.3% of the company. Yancoal said it received “an
unsigned, non-binding expression of interest” from its parent on
April 29. Yankuang first made its approach public on May 25.
    Yankuang offered to buy out minority shareholders with a
bond that would convert into its Hong Kong-listed stock at a
premium of a least 50% to its 20-day trading average. The
tentative deal offered holders of Yancoal’s ASX-listed stock
A$5.07 per share, a 5% discount to the closing price on April
29. Hong Kong owners, meanwhile, were offered HK$28.36 a share,
a 10% discount.


 (Editing by Una Galani and Katrina Hamlin)
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