Rio Tinto deal to sell coal mines to Chinese could face new hurdle

THE sale of Rio Tinto’s Australian coal mines may have hit a snag after a minority shareholder in Yancoal, the buyer of the operation, declared its opposition to the deal.

Senrigan Capital, a hedge fund based in Hong Kong, has complained to the Australian Takeover Panel that Yancoal’s plans to fund the $2.69bn (£2bn) purchase by raising $2.35bn in a rights issue was “prejudicial” to the interests of minority shareholders, who could find their stakes diluted out of existence if they are unwilling to subscribe for more shares.

The equity fund raising, which will involve the issuing of 23.6 new shares for every one currently held, was “unnecessarily highly dilutive and ‘value shifting’”, Senrigan told the Takeover Panel, adding: “[It] does not allow existing minority shareholders a reasonable and equal opportunity to participate.”

Yancoal’s parent company Yanzhou – which is backed by the Chinese state – has agreed to take up $1bn of the new shares on offer, with the rest being underwritten by two other Chinese firms and Glencore, which will buy up $350m.

Senrigan argued that the other Chinese investors were associates of Yanzhou, and therefore the Chinese group would see its voting power rise from 78pc to 89.15pc as a result.

Last week it was reported that Noble Group, the struggling Singapore-based commodity trader that owns 13pc of Yancoal, was also opposed to the equity raise. Both shareholders successfully appealed to the Takeover Panel in 2014 against an earlier fundraising by Yancoal. The size of Senrigan’s stake in Yancoal, though small, consists of shares and “cash settled equity swaps”, according to the panel.

The Takeover Panel said it had not yet decided whether to investigate the matter. Yancoal first bid for Rio’s coal mines in New South Wales in January. It sparked a bidding war with Glencore earlier this summer, with the Switzerland-based group keen to pair the Rio assets with its own operations.

Though Glencore lost its bid to gain outright control, it subsequently struck an agreement to buy a stake in the mines from Yancoal once its deal with Rio completes.

However, if Yancoal is unable to raise the financing for its acquisition, it could leave the door ajar for Glencore to bid again. Rio and Glencore declined to comment. Senrigan and Noble Group did not reply to a request to comment.