decision day?, page-4

From the Australian:

IN a further muddying of Australia's foreign investment policy, the Rudd government has approved Yanzhou Coal's $3.5 billion cash takeover of Felix Resources, paving the way for the biggest Chinese state investment in Australia's resources sector to date.
Coal

But Yanzhou's complete hold on Felix will not be permanent, with the government requiring the Chinese state-controlled company to float more than 30 per cent of its Australian assets, which include the Austar mine in NSW that Yanzhou already fully owns, by the end of 2012.

The approval, announced late yesterday by Assistant Treasurer Nick Sherry, comes a day after BHP Billiton chairman Don Argus called for greater debate over selling our natural resources.

He suggested requiring greenfield purchases by state-owned entities to be half-floated in 15 years.

It also flies in the face of comments from Foreign Investment Review Board executive chairman Patrick Colmer a month ago that the government would prefer state-owned entities to keep their stakes in undeveloped projects below 50 per cent and in major producers below 15 per cent.

It is not the first 50 per cent-plus stake delivered to a state-owned Chinese company this year. But unlike the case of China Minmetals' takeover of most of OZ Minerals' assets and Zhongjing Lignan's 50.1 per cent move into Perilya, Felix is not a distressed company facing possible administration without Chinese investment.

Among other things, the approval is conditional on Yanzhou's Australian company, Yancoal, being headquartered in Australia and having a "predominantly Australian" management and sales team.

Yancoal must have at least two directors living in Australia, with one being independent. And after Yancoal is listed, Yanzhou's equivalent ownership must be no more than 50 per cent of any mines.

In some cases this will happen anyway with the listing, because Felix is in joint ventures with other companies. But in the case of Austar, Yarrabee and Moolarben projects, a sell-down in stakes will be required if Yanzhou wants to keep 70 per cent of Yancoal.

"With these undertakings provided by Yanzhou, I consider that this acquisition is consistent with Australia's national interest," Senator Sherry said.

The condition to float on the Australian Securities Exchange, which Senator Sherry said would be the first time a Chinese state-owned entity had listed here, was painted as a progression in Sino-Australian relations. "It demonstrates the strength of the developing bilateral economic and investment partnership between Australia and China," he said.

Minmetals has said it plans to list on the ASX at some stage, without being required to, so could beat Yancoal to the punch.

At current market value, a Yancoal initial public offering would probably raise about $1.5bn.

Analysts had expected the Felix takeover to get approval based on FIRB's previous openness to coalmine acquisitions, although some had said the chances of it happening had been reduced after Mr Colmer's comments.

One adviser to Chinese companies trying to invest in Australian resources, who has had potential takeovers of Australian public companies quashed by FIRB before they were made public, expressed frustration at the lack of consistency.

"It creates complete confusion as to what the policy is," he said.

"All we can see is that there is no policy."

Senator Sherry's office would not comment on what could be gleaned from the decision in terms of policy.

Yanzhou issued a statement saying it was pleased with the decision.

Felix shareholders are now due to vote on the takeover on December 8.

With three Felix directors owning 49.37 per cent of the company, approval is not expected to be a problem.