3 Billion Barometer Of Trade Tensions – US-FOREX.US
HONG KONG -
China’s Yanzhou Coal appears set to announce a takeover bid to purchase Australian coal miner Felix Resources. The 3.1 billion deal would be China’s largest-ever acquisition in Australia and also a thermometer that measures the heat of the recent trade battle and diplomatic tensions between Beijing and Canberra.
Shares of Felix Resources
in Australia and the stocks of Yanzhou Coal
in both Hong Kong and Shanghai were suspended from trading for the second day on Tuesday. Felix Resources said Monday that an announcement was pending on the outcome of talks on a potential change of control transaction.
It is widely reported that both parties, which have been in talks on and off since last year, have finally reached the final stage for clinching a deal. The Australian newspaper reported that Yanzhou has offered about 18.00 Australian dollars cash per Felix share, while another paper, The Sydney Morning Herald, revealed a higher bidding price of just under than 20 Australian dollars a share, valuing the entire Felix Resources at as much as 3.7 billion Australian dollars .
According to market speculation, Yanzhou’s offering price would carry a premium ranges from 6.5% to 18.3% to Felix’s last closing price of 16.9 Australian dollars before the trading halt.
Felix’s chairman, Travers Duncan, managing director Brian Flannery, and non-executive director Hans Mende, hold a total stake of over 49% in Felix. If the three major shareholders all agreed to sell their shares, Yanzhou Coal could easily take control of the Australian miner.
The deal, however, is subject to approvals from both Felix’s shareholders and Australia’s Foreign Investment Review Board.
The Foreign Investment Review Board is responsible for providing a review and evaluating whether the investment is in line with the national interest. The Treasurer then makes the final decision.
On paper, the watchdog doesn’t really have strong reasons to block the deal as Felix Resources, which mostly exports coals to its major clients in South Korea and Japan, was never a major supplier at home in the Australian market, Credit Suisse
said in a research note. And Yanzhou Coal has already owned the Southland mine and didn’t have any problems from the government related to its previous coalmine purchases, said USB, another Another time.brokerage.
It the deal goes through, it would be China’s biggest overseas investment in Australia since last year, when another state-owned enterprise, Sinosteel, bought West Australian iron ore mining company Midwest Corporation Limited for 1.5 billion Australian dollars last year.
Yanzhou Coal, the fourth-largest coal producer in China. The share price of Yanzhou Coal has more than tripled from around 3.50 Hong Kong dollars in November last year to 12.7 Hong Kong dollars as of last Friday’s closing.
Felix Resources mainly produces higher-margin metallurgical coal, which is used in the production of steel, from its mines across the states of New South Wales and Queensland. The miner will soon start operation of its 80%-owned Moolarben project in New South Wales to supply thermal coal, the cheapest coal, which is mainly consumed by thermal power stations for use in the production of electricity. Expectations about a deal with a Chinese buyer have pushed up the market price of Felix Resources threefold, from 4.67 Australian dollars last December.
Yet, anything can happen now, because the political and economic tensions between China and Australia are heating up dramatically.
The tension began to build up in June when Rio Tinto
rejected Chinalco’s 19.5 billion bid to buy its major mining assets and convertible bonds at the last minute. Instead, Rio formed an iron ore and coal joint venture with its rival BHP Billiton
in Western Australia. Chinese commentators complained that the Australian miner acted immorally in its dealings with the Chinese firm, which was supposed to be a white knight saving the financially strained Rio.
Then Chinese steel mills, led by China Iron and Steel Association, used hardline negotiating tactics while discussing future iron ore contracts with Rio Tinto, which was a representative for other major miners.
Then four Shanghai-based Rio Tinto executives were detained by Chinese authorities for allegation of bribing Chinese steelmakers to obtain classified information about the Chinese steel sector during price negotiations.
In the latest episode, staged over the weekend, a former Chinese intelligence bureaucrat alleged that Rio Tinto had been spying on the Chinese steel industry for as long as six years, and used the information to make the Chinese steel sector overpay by 700 billion yuan for iron ore imported over the period.
Thomson Reuters contributed to this article.