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Chinese firm adds incentives to fend off Glencore's challenge of Rio assets

Jun 26 2017 10:41
Perry Williams, Bloomberg

(iStock)

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GLENCORE PLC [JSE:GLN]

Last traded 39
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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Sydney - China-controlled Yancoal Australia added new incentives to its offer for Rio Tinto Group’s Australian coal assets to fend off a last-minute challenge by rival Glencore [JSE:GLN], according to a person with knowledge of the situation.

Yancoal submitted a revised offer and will release details of the proposal on Monday morning in London, said the person, who asked not to be identified as the information isn’t public. The value of the offer will remain at $2.45bn but will include new incentives that may make it more attractive to Rio, said the person.

A deal struck in January by the unit of China’s state-run Yanzhou Coal Mining to buy Rio’s thermal coal operations in New South Wales has been under siege this month by Glencore.

The Baar, Switzerland-based commodity trader and miner strengthened its offer on Friday to nearly $2.68bn in cash plus a coal-price linked royalty, as well as promises of a hefty deposit and compensation for regulatory delays.

The battle over Rio’s Coal & Allied unit, which Glencore sparked June 9 with a surprise bid, hinges on whether Glencore will be able to allay Rio’s worries over regulatory approvals in China, the world’s biggest coal producer and user. Rio last week backed the previous revised proposal by Yancoal, citing an expected faster deal timeframe due to clearances it already received by China and Australia.

READ: Glencore's last minute gambit gives Rio cash-or-China dilemma

Success for Yancoal would make it the biggest coal-only producer in Australia and give it a stake in Port Waratah Coal Services, the owner of two terminals at the port of Newcastle, the country’s main conduit for thermal coal. The prize for Glencore is a potential $1bn of synergies through combining output and marketing with its adjacent operations, according to RBC Capital Markets.

In Glencore’s new bid Friday, it promised to pay a $225m deposit, which would be forfeited if the deal doesn’t win regulatory approval. The company, led by former coal trader Ivan Glasenberg, would also compensate Rio if the deal is delayed, either by paying $25m a month or cash flow from the mines after September.

Concerns that Glencore’s purchase would be blocked by China aren’t justified as Coal & Allied shipments account for less than 1% of the country’s regular imports, according to the mining company. “The risk of any regulatory approval not being granted is low,” it said in its statement late Friday.

Glencore said Rio has until 19:00 on Monday to accept. Rio said it will review Glencore’s new bid and provide an update before the shareholder meeting on Tuesday. If it decides the offer is superior, it will postpone the meeting and give Yancoal time to respond.

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