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Hong Kong hedge fund seeks to block Yancoal's US$2.35B capital raising

Hong Kong-based Senrigan Capital Management Ltd. lodged an application with Australia's Takeovers Panel requesting to block Yancoal Australia Ltd.'s proposed US$2.35 billion renounceable entitlement offer.

Earlier in August, Yancoal's 13.2% shareholder Noble Group Ltd. was also planning to challenge the equity raising, with plans to lodge an objection with the Takeovers Panel.

On Aug. 1, Yancoal announced a 23.6-for-1 entitlement offer priced at 10 cents per share to raise about US$2.35 billion and a placement to strategic investors at the same price to raise US$150 million. The share price represents a 67.9% discount to the July 31 closing price of 39 cents per share for Yancoal stock.

Yancoal is raising the money to fund its US$2.69 billion acquisition of Coal & Allied Industries Ltd. from Rio Tinto.

Yanzhou Coal Mining Co. Ltd., which has a 78% interest in Yancoal Australia, has committed to subscribe for US$1 billion of the entitlement offer. Yanzhou Coal outlined plans in late June to raise up to 7 billion Chinese yuan to help fund Yancoal's deal with Rio Tinto.

The remainder of the entitlement offer is also underwritten, with Glencore Plc taking up US$300 million worth of shares and China Cinda Asset Management Co. Ltd. and Shandong Lucion Investment Holdings Group Co. Ltd. stepping in for US$1 billion combined.

Senrigan said in its Aug. 9 application to the Australian regulator that the rights issue is highly dilutive and does not allow existing minority shareholders like itself "a reasonable and equal opportunity to participate."

Since Cinda and Lucion are associates of Yanzhou, and the voting power of Yanzhou and its associates could increase from 78% to 89.15% as a result of the entitlement offer. The hedge fund wants the Takeovers Panel to block the fundraising until it makes a decision on the application.

The panel ruled in favor of Senrigan Capital in 2014 when it objected to a A$2.3 billion convertible notes issue by Yancoal.