Yancoal Australia's US$2.5bn equity raising - A landmark deal

MinerEllison co-advised Yancoal Australia Limited's (Yancoal) US$2.5 billion (A$3.2 billion) equity raising, which provided funding for the acquisition of 100% of the shares in Coal & Allied from wholly-owned subsidiaries of Rio Tinto Limited.

The significant equity raising funded Yancoal acquisition of Coal & Allied (the number 1 global mining deal (by value) at the time) and helped catapult Yancoal into the position of Australia's largest producer by pure-play coal.

The firm advised on all aspects of the transaction, with primary responsibility of the offer document, the due diligence process and the underwriting and syndicate arrangements.

The capital raising was comprised of a 23.6 for 1 pro-rata renounceable entitlement offer to raise approximately US$2.35 billion and a fully committed share placement to strategic investors to raise US$150 million.

MinterEllison’s team was led by Partner Daniel Scotti. He was supported by Renee Doyle (Special Counsel) and Nicole Sloggett (Senior Associate).

“We are delighted to have assisted Yancoal on this significant, transformative and now, award-winning, transaction. The transaction was highly complex, involving cross-border issues and significant stakeholder management”

Daniel Scotti, lead partner on the transaction and Head of MinterEllison’s Sydney Equity Capital Markets team.

"We utilised our specialist team and knowledge gained from our long-standing relationship with Yancoal, collaborating closely with it and our co-advisers to deliver a successful transaction”.

Significance for client

The capital raising and strategic acquisition of Coal & Allied helped redefine Yancoal's position within the global coal marketplace as it:

• Provides Yancoal with majority interests in three of the ten largest low cost thermal coal mining operations in Australia
• Has the potential to unlock significant synergies from the integration of Coal & Allied with Yancoal’s existing portfolio and incremental synergies from Yancoal’s partnership with Glencore in the Hunter Valley
• Delivers a sustainable capital structure and cash flow generation to support deleveraging and value creation; and
• It is accretive across key operational and financial metrics.

Complexities

Several unusual features of the capital raising contributed to its complexity and novelty.

• The nature of Yancoal’s register and the decision of the Australian Takeover’s Panel in relation to Yancoal’s 2014 SCN offering, meant that careful consideration had to be given to the structure of the capital raising to ensure that it did not give rise to ‘unacceptable circumstances’ which would expose Yancoal to the Takeovers Panel risk.
• The eligible shareholders were given the benefit of a guaranteed allocation in the oversubscription facility for the entitlement offer (which is unusual in the context of an entitlement offer).
• The underwriting arrangements for the capital raising were complex. The joint lead managers to the capital raising did not underwrite, rather underwriting commitments were secured from Chinese investors (which presented challenges as a result of ASX’s position that that all Chinese state-owned enterprises are associates).
• The deal also required novel disclosure and mechanics to accommodate the offer being denominated in US$ despite Yancoal's shares being quoted in A$.

Outcome / Recognition

The deal has been recognised with the following Awards:

• 2018 Australasian Law Awards – Winner - Equity Market Deal of the Year for the Yancoal Capital Raising
• 2018 Australasian Law Awards – Winner - M&A Deal of the Year for Yancoal’s acquisition of Coal & Allied
• 2018 Asia Legal Awards run by the World Services Group – Winner - Acquisition Finance Deal of the Year.

“It's great to receive this recognition for being involved in some of the largest and most innovating deals in the Australian market – along with winning the Yancoal deal valued at A$3.2 billion, we also received recognition in the 2018 Australasian Law Awards with two other deals, the Ten Network Restructuring and the Boart Longyear Restructuring being recognised as finalists”

Con Boulougouris, Head of MinterEllison’s Sydney M&A team

"The continued growth and momentum in our M&A practice is a testament to our extremely high performing line-up and the outstanding work we're doing with our clients, including our ASX100 clients, in helping them manage complex situations and deals."