Kolkata: Rey Resources Ltd, an Australian Securities Exchange, or ASX-listed firm exploring coal reserves in Canning Basin in the northwest of Australia, is at the centre of an escalating battle for control involving an Indian entity that’s seeking to secure thermal coal assets abroad.
Gujarat NRE Minerals Ltd (GNML), another ASX-listed coal miner promoted by Kolkata-based Gujarat NRE Coke Ltd, is trying to buy 100% of Rey through an open offer that has been rejected by Rey’s management, which is trying to bring in a white knight from India and other Asian countries. A white knight is a company that is a friendly acquirer in a takeover.
Also See Battle For Control (Graphic)
After several extensions, GNML’s offer is set to lapse on 19 March, but according to group chief financial officer P.R. Kannan it would be extended again. “Regulations allow us to extend the offer for up to a year, which is till June,” he said in an interview. “If we allow the offer to lapse, we would have to make a fresh offer at a revised price, which we don’t want to do.”
Rey came into the limelight when on 3 June last year GNML announced its intention to make an open offer for all of Rey’s shares.
GNML currently holds a 12% stake in Rey, and Rey’s directors collectively own 13%, their stakes having been diluted since a capital raising in November under which the company sold shares to institutional investors raising Australian $15 million.
Faced with the need for funds to develop its assets and having rejected GNML’s bid, the Rey management is now looking to bring in a white knight and according to its managing director Kevin Wilson, the company is in discussion with potential investors from Asia, including India.
“We are looking to get in other investors with whom we could get into an arrangement for development of our (Canning Basin) assets. It could be in the form of a joint venture or a strategic investment (in Rey’s shares),” Wilson said in an interview.
What GNML and other firms are eyeing is Rey’s exploration tenements covering 8,000 sq. km in the Canning Basin, which include its Duchess Paradise Project estimated to have at least 511 million tonnes of thermal coal reserves.
Production from Canning Basin is set to start in 2013, Rey said in recent investor presentations.
GNML, which owned 16.64% in Rey at the time of issuing its open offer document on 20 June, said it would offer one share in itself for five held in Rey, valuing the latter’s shares at 9 Australian cents apiece.
The offer wasn’t initially free of defeating conditions: GNML said its offer would lapse unless it managed to buy at least 50.1% of Rey’s shares.
But this condition was later withdrawn, and GNML also included a cash component in its offer under which Rey shareholders could directly sell out at 9 Australian cents a share.
Rey’s management immediately told shareholders that they should “reject” the bid, and subsequently on 4 August, Rey’s directors, who collectively held 19% stake at that point, said in a detailed statement that they were unanimous in their view that GNML’s “inadequate offer” did not recognize the company’s true potential.
In its offer document, GNML wrote that it had invested in Rey’s shares in October 2005 because it “believed in the potential in the Canning Basin coal project” and that it had become “increasingly frustrated” with the Rey management’s inability to develop the asset and “unlock value for shareholders”.
GNML hopes its own share price would increase making its one-for-five share swap offer to Rey’s shareholders attractive, Kannan said.
But it isn’t as of now: GNML’s shares closed on the ASX on Thursday at 66 Australian cents apiece, while Rey’s shares closed at 15.5 Australian cents each.
Graphic by Yogesh Kumar / Mint