Asian companies continue to make their presence felt in the scramble for the world’s natural resources. China’s acquisitiveness is closely recorded, but other countries within the region are also keen to secure supplies and make investment returns. Korea, with its large industrial base and urban population, has become a significant player, especially since Korea National Oil’s $2.8 billion purchase of UK-based Dana Petroleum in 2010.
The country’s conglomerates and state-owned enterprises are also prepared to take smaller, strategic interests in exploration companies.
On Monday, SK Networks agreed to subscribe for approximately 585.1 million shares in Australian coal miner Cockatoo Coal through a private placement. If shareholders approve the transaction, the Korean firm’s stake in the mining exploration company will increase to 40% from 5.5%.
SK Networks, is part of Korean conglomerate SK Group, and has a wide range of activities that include resources, energy, chemicals, steel and clothing. Its resources and energy business was set up in 1981, and focuses on commodities trading, with an emphasis on coal and oil and gas. It also has direct interests in base and precious metals ventures across Asia, coal projects in Indonesia, Mongolia and Australia, and has made a strategic investment in Brazilian ore producer MMX Mineracao.
So far, Cockatoo and SK Networks have agreed on a term sheet containing the key commercial terms of a proposed deal under which SK Networks, or its nominated associated companies, intend to pay 53.5 cents per share for a total investment of about A$313 million ($331 million).
The price represents a whopping 46.6% premium to Cockatoo’s closing price on March 9. The offering is exclusive to SK Networks and not available to other shareholders, which include Korea’s Posco and Korea Electric Power, according to a person familiar with the deal. Posco currently owns a 13% stake, the person said.
However, SK Networks has agreed not to raise its stake in Cockatoo above 40% for a period of four years after the private placement, although its holding will be protected by anti-dilution rights. The Korean company can nominate two additional directors to Cockatoo’s board – lifting its representation to three – but will not have a controlling interest.
SK Network intends to be “a very supportive sponsor of the Cockatoo board and management team…helping to unlock the full potential of Cockatoo’s asset base for the benefit of all shareholders,” said Hak Hee Lee, a director of SK Networks, in a press statement.
SK Networks and Cockatoo aim to sign final binding agreements by the end of this month.
The deal follows discussions between Cockatoo, which is advised by Credit Suisse and Minter Ellison, and SK Networks, advised by Macquarie and Baker & McKenzie, last year about a range of possible transactions. Cockatoo has plans to develop its port and rail facilities and needs to stump up its share of the cost of the Wiggins Island Coal Terminal expansion. More urgently, it needs to refinance a debt facility with Credit Suisse and Macquarie that matures on June 28, 2012. That bridging loan was signed late last year to repay debt owed to Korea Exchange Bank.
Even if the share placement does not proceed, the refinancing seems to be ensured. SK Networks has also contracted, and received, board approval to guarantee a A$150 million secured loan facility from KEB Australia, which will be available irrespective of the success of the plans for an equity injection. If, as seems likely, other shareholders do agree to the placement, Cockatoo will still have access to the loan, which is expected to have a maturity date of December 28, 2012.
“The proposed placement puts [the company] in a strong funding position to pursue its pipeline of attractive growth projects and validate the quality of [its] assets,” said Mark Lochtenberg, managing director of Cockatoo.
After the placement, Cockatoo will have a pro forma capitalisation of about A$684 million. The company was listed on the Australian stock exchange in 2005, and has thermal coal and metallurgical assets located in Queensland and New South Wales. Its main site is the Baralaba open cut coal mine in the Bowen Basin, which is forecast to produce around 750,000 tonnes in the next 12 months. The company intends to expand production to 3.5 million tonnes a year by 2014. Its other major assets lie across the Surat Basin and Kingaroy projects in Queensland.