CICC Facilitates Yancoal's US$2.5bn Equity Raising & Acquisition

Yancoal Australia Limited (ASX: YAL) successfully completed its US$2.5 billion equity issuance on August 31 2017 to fund its acquisition of Coal & Allied from Rio Tinto. Alongside this main transaction, Yancoal also established a joint venture in relation to one of the key assets, namely HVO, under Coal & Allied with Glencore Coal Pty Ltd (a wholly owned subsidiary of Glencore plc) for a total consideration of US$1.1 billion for Glencore Coal’s 49% stake. Glencore Coal further subscribed US$300mn in Yancoal’s equity issuance and became a strategic investor of Yancoal. The Coal & Allied acquisition was completed on September 1, 2017.

The acquisition ranks the largest in size among Chinese companies’ acquisitions in Australia since 2014 and the 2nd largest in size in Australian Market’s 2017 YTD M&A transactions. Yancoal’s US$2.5 billion equity issuance ranks the highest in value among ASX listed issuances with Chinese controlling shareholders, and the highest in value in ASX Market’s equity issuance since 2016. CICC acted as joint financial advisors for Yancoal in the transactions and joint global coordinators, joint book runners and joint lead managers for its equity issuance.

Despite all kinds of challenges throughout the close-to-2-year process, ranging from negotiating with Rio Tinto and MDP (minority holder of HVO with tag along rights), to coordinating across 3 levels of entities (Yankuang, Yanzhou, and Yancoal), obtaining regulatory approvals in multiple countries, meeting disclosure requirements of 3 exchanges (SSE, HKSE and ASX), complying with China SASAC supervision, and securing Australia Takeovers Panel support against minority shareholder disputes, Yancoal prudently managed through each individual step, to ultimately won the counter bid of Glencore, and turn it from a competitor to an ally and strategic investor through the HVO JV formation and the equity issuance participation. Glencore’s participation is a further endorsement of the high quality and attractive valuation of the Coal & Allied assets.

By injecting the low-cost, premium-quality, world-class Coal & Allied assets, restructuring existing debt (US$1.8 billion SCN conversion into equity), and partnering with global leaders like Glencore, Yancoal will extract significant synergies, and completely transform itself into a whole new company, ranking as the largest pure-play coal producer and the third largest mining company in Australia. Moreover, Yancoal’s earnings capacity, capital structure, shareholder structure, and market liquidity will all notably improve.

The transaction fulfilled the purpose of all parties and will create significant value for Yancoal shareholders. Rio Tinto achieved the divesture of its non-core assets to re-focus on its core business; Glencore secured 49% of the top-tier asset, HVO, and will maximize its value through its coal marketing rights in several key countries; Yanzhou (Yancoal's parent company) will eventually realize the complete turn around of its major subsidiary; and new entrants in the Yancoal stocks will likely see meaningful upside and steady yield as synergies extracted and the new company reduces debt further and delivers solid earnings.

As the only Chinese investment bank involved in the transaction, CICC provided extensive support to Yancoal encompassing transaction structure examination, funding option evaluation, regulatory communication, JV formation facilitation and investors introduction. The US$2.5bn issuance is the first ever ASX market equity raising participated by a Chinese investment bank, and all procedures in the issuance follow Australian market's common practice. All these showcased CICC’s strong caliber in facilitating Chinese cooperations’ going abroad, and servicing them in the global capital market, which further demonstrated CICC’s “Chinese Roots” and “International Reach”. CICC looks forward to working closely with more Chinese and international enterprises, and providing high-quality financial services in international M&A transactions, as well as equity and debt capital raising activities.