Yancoal Australia Refinancing Debt with $US2.3bn Notes Sale

The Rio Tinto’s and BHP Billiton’s of Australia continue to shake off concern over iron ore and coal prices, but other companies are making some drastic moves to remain or become profitable again. Yancoal Australia Ltd, an arm of China’s Yanzhou Coal Mining Co Ltd has designed a $US2.3 billion deal to refinance its debt. This move will help the company, in part, weather a particularly lengthy slump in coal prices.

"In a depressed commodities marketplace facing continued uncertainty for the near-term, Yancoal's existing level of debt is a significant constraint on our future expansion and operational improvement strategies," Yancoal Chief Executive Reinhold Schmidt said in a statement.

Yanzhou planned to privatise Yancoal earlier this year, but the motion failed after the company’s second largest shareholder—Hong King-based trader Noble Group—provided enough resistance. Yancoal’s new approach is to raise up to $US2.3 billion through a sale of convertible notes to shareholders. Parent company Yanzhou has already provided its ful 78-percent share, which totals more than half of the money needed to be raised at $US1.8 billion. To shore up coal operations and pay distributions to the notes, Yanzhou has committed to providing a further $A1.4 billion. The annual distribution rate on the notes will be set at 7 percent for the first five years.

Yancoal has had a rough year compared to competitors like Whitehaven Coal and New Hope Coal—Yancoal’s shares have dropped 71 percent as the company has tried to manage its debt.

Information sourced from Reuters.