Yancoal to keep head above water with capital notes offer

Yancoal will receive a $2.8 billion investment injection from owner Yanzhou Coal to keep it going as the industry waits out the doldrums of low commodity prices.

Yanzhou owns 78 per cent of Yancoal, and has undertaken to ensure Yancoal remains solvent.

The funds will be raised through a subordinated capital notes rights offer of 2.3 notes for every 100 Yancoal Australia Limited shares.

Yancoal CEO Reinhold Schmidt said the company was taking the necessary steps to reduce gearing, improve operational efficiencies and deliver cost savings.

“The Offer of Subordinated Capital Notes to raise up to approximately US$2.3 billion will strengthen our balance sheet, and may secure funding to pursue future growth opportunities,” Schmidt said.

“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.

“As such, Yancoal will apply US$1.8 billion of the Offer proceeds to repay existing senior loans from our major shareholder Yanzhou and improve Yancoal’s capital structure and gearing ratio.

“Any remaining proceeds will be used to part fund Yancoal’s exiting coal operations and further growth projects, including commencement of Moolarben Stage 2, pending final approvals.”

Yancoal said it intends to apply US$1.8 billion of the Offer proceeds to repay existing senior debt owing to Yanzhou and use any remaining proceeds to part fund Yancoal’s existing coal operations and future growth.

Yancoal's share price dropped rapidly after April this year, going from 66c and currently trading at 16c, less than a quarter of the previous value.

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