Chinese Coal Giant Yanhzou Abandons Yancoal Takeover

Major Chinese coal company Yanzhou has walked away from their offer to take over Australian company Yancoal. This decision comes after both a successful lobbying attempt to remove the conditions tied to the company, and the value of their deal falling well below their original proposal.

The Labor government had allowed Yanzhou to acquire Felix Resources in 2009, on the grounds that it be listed and headquartered via Yancoal, and also sell down its stake in the company below 70 percent.

The timeline extended in 2012, where Yanzhou was given an extra year to complete the sell down when it acquired Gloucester.

After intensive lobbying, Treasurer Joe Hockey allowed Yanzhou to cancel their 2009 selldown commitment. The official, approved decision reached held that Yanzhou hold a 78 percent stake in Yancoal, and then offer securities valued at $151 million for the other 22 percent of the company, based on the company’s share prices of last July. These terms were agreed to in December of 2013.

However, since then, the value of Yanzhou’s offer had fallen to less than $130 million. In a one-page statement issued at the end of May, Yanzhou announced it was abandoning the bid with no specific explanation.

In researching a reason, one does not have to look very far. China’s coal industry has been failing since the end of last year, and Yancoal is a lose-maker that is potentially facing a “red ink future”. And while China’s coal consumption increased by 2.6 percent in 2013, that’s only a third of the rate of growth in GDP.

Some believe that this deal has left a hole in Australia’s credibility on foreign investment regulation. However, the next deal that comes up will certainly be regarding much more carefully.