Yanzhou Coal Mining is planning to invest around $3.5bn in its majority-owned coal mining company Yancoal Australia to bail it out amidst falling coal prices.
Yancoal Australia (YAL) is 78%-owned by China based Yanzhou Coal and currently operates seven mines in Australia.
In order to repay existing debt and to fund operations and future growth, Yancoal is seeking to raise $2.7bn through a subordinated capital notes offer.
Yanzhou Coal will subscribe for full entitlements in the offer, which amounts to approximately $2.1bn.
Additionally, the company will provide up to $1.4bn in extra support and fund distributions on the subordinated capital notes over a five-year period after issuance.
The funding package follows Yanzhou Coal's plans to acquire the remaining 22% interest in YAL, following opposition from Hong Kong-based Noble Group, a shareholder in the company.
YAL CEO Reinhold Schmidt said: "Yancoal continues to take the necessary steps to reduce its gearing, improve operational efficiencies and deliver significant cost savings to weather the challenges of an increasingly competitive marketplace.
"The offer of subordinated capital notes to raise up to approximately $2.3bn will strengthen our balance sheet and may secure funding to pursue future growth opportunities.
"As such, Yancoal will apply $1.8bn of the offer proceeds to repay existing senior loans from our major shareholder Yanzhou and improve Yancoal's capital structure and gearing ratio.
"Any remaining proceeds will be used to part fund Yancoal's exiting coal operations and further growth projects, including commencement of Moolarben stage two, pending final approvals."