China Construction Bank (Hong Kong Branch) restructures — via a three-year maturity and grace period extension in 2014 — a $2.9 billion USD syndicated term loan to Yancoal Australia for the acquisition of Felix Resources Limited

Project narrative

On August 13, 2009, Yanzhou Coal Mining Company Limited entered into a binding scheme implementation agreement with Felix Resources Limited — a corporation incorporated in Australia and listed on the Australian Securities Exchange (ASX) — to acquire a 100% equity interest in Felix Resources for Yancoal Australia Limited — a wholly-owned subsidiary of Yanzhou Coal Mining — via Austar Coal Mine Pty Limited — an Australia-incorporated limited liability company and a wholly-owned subsidiary of Yancoal Australia Limited — for a cash consideration of $3.333 billion AUD payable to Felix's shareholders. To support the Felix acquisition, Yancoal Australia borrowed $3.04 billion USD of acquisition debt, consisting of a $2.9 billion USD term loan facility (known as the 'Felix Acquisition Facility') and a $140 million USD ancillary term (known as the 'Ancillary Felix Facility'). On October 19, 2009, a three-bank syndicate — the Sydney Branch of the Bank of China (BOC), the Hong Kong Branch of China Construction Bank Corporation (CCB), and the Hong Kong Branch of China Development Bank Corporation (CDB) — entered into a $2,900,000,000 USD syndicated term loan facility agreement with Yancoal Australia Limited for the acquisition of Felix Resources. This loan carried an interest rate of USD 3-month LIBOR plus a margin of 0.75% per annum with interest payments were payable monthly or as otherwise selected by Yancoal Australia or agreed with lender in accordance with the terms of relevant agreements, an annual fee of 0.10%, and underwriting fees of $1.45 million USD payable in each of 2012 and 2013. This facility carried a maturity period of 5.166 years and a grace period of 3.166 years. The facility was repayable in installments of $970 million USD on December 16, 2012 and December 16, 2013, respectively, and $960 million USD on December 16, 2014 (final maturity date), with any remaining balance to be paid on the earlier of December 16, 2014 or ten business days prior to the January 14, 2015 expiry date of an irrevocable letter of credit granted by the Shandong Branch BOC to support this facility. The borrower on-lent the proceeds of this loan facility to Austar Coal Mining Pty Limited to be used for the acquisition of Felix. BOC Sydney Branch served as Agent for this loan. The $2.9 billion USD syndicated facility was fully drawn (disbursed) at its inception. Record ID#97119 captures BOC's contribution to the $2.9 billion USD loan. Record ID#97120 captures CCB's contribution. Record ID#97121 captures CDB's contribution. On December 9, 2009, the Sydney Branch of BOC entered into a $140,000,000 USD ancillary term loan facility with Yancoal Australia for the acquisition of Felix Resources. This loan carried an interest rate of USD 3-month LIBOR plus a margin of 0.80% per annum with interest payments payable monthly or as otherwise selected by Yancoal Australia or agreed with lender in accordance with the terms of relevant agreements, and an annual fee of 0.10%. This facility carried a maturity period of five years and a grace period of three years. The facility was repayable in installments of $45 million USD on December 16, 2012 and December 16, 2013, respectively, and $50 million USD on December 16, 2014 (final maturity date), with any remaining balance to be paid on the earlier of December 16, 2014, or ten business days prior to the January 14, 2015 expiry date of an irrevocable letter of credit granted by the Shandong Branch BOC to support this facility. The borrower on-lent the proceeds of this loan facility to Austar Coal Mining Pty Limited to be used for the acquisition of Felix. The loan was fully drawn down. Record ID#49960 captures the $140 million USD facility. Yanzhou Coal Mining Company Limited issued a guarantee for the $2.9 billion USD loan on October 19, 2009, and the $140 million USD loan on December 8, 2009. The corporate guarantee was for the full amount of each of the facilities. Yankuang Group Corporation Limited, the controlling shareholder of Yanzhou Coal, issued a counter-guarantee for Yanzhou Coal's guarantee. Additionally, both of the borrowings were secured by (i.e. collateralized against) a portion of Yanzhou Coal Mining Limited's term deposits, in the form of a standby line of credit for the full amount of the facilities. The [senior] debt ranked ahead of Subordinated Perpetual Convertible Unsecured Capital Notes (SCNs), shareholder debt, and other junior ranking obligations. Under the covenants of each of these facilities, Yancoal Australia to abstain from the following without first receiving lenders' consent: disclose the loan agreements to third parties; create or permit to subsist any security over any assets (negative pledge); sell, transfer or dispose of any assets on terms whereby they may be leased or reacquired by Yancoal Australia; dispose of any receivables on recourse terms; enter into title retention arrangements; enter into any setoff or similar arrangements; enter into a preferential agreement, except for existing securities or related refinancing of financial accommodation that does not exceed the facilities that are refinanced; make any substantial change to the general nature of its business; and sell, lease or otherwise dispose of any assets, subject to certain exceptions. The facilities did not include financial covenants such as debt service cover ratio, gearing ratio, interest cover ratio or total leverage ratio, but did include customary events of default that would entitle the lender(s) to terminate agreement and/or demand immediate repayment. Additionally, under these facilities prepayments were only permitted after issuing a five business days' notice to the relevant lender(s), had to be made in a minimum amount of $5 million USD and in multiples of $1 million USD or as agreed by the borrower and lenders. The lenders had the right to require repayment of the outstanding amount and interest in the event if became illegal to comply with the terms and obligations of the loan or if Yanzhou Coal ceased to control Yancoal Australia. The acquisition was completed on December 23, 2009. Felix was delisted from the ASX on December 30, 2009. Yancoal Australia then renamed Felix Resources as Yancoal Resources Limited. To secure the approval from Australia's Foreign Investment Review Board (FIRB), Yanzhou agreed to float (publicly list) 30% of Yancoal Australia by the end of 2012. Then, on December 22, 2011, Yancoal Australia Limited, Yanzhou Coal Mining Company Limited, and Gloucester Coal Limited entered into an agreement to merge Yancoal Australia and Gloucester, which was amended on March 5, 2012, in which Yancoal would acquire the entire issued share capital of Gloucester via a scheme of an arrangement in such a manner that Yanzhou would own 78% of Yancoal Australia and Gloucester's existing shareholders would own 22% of Yancoal. One of the conditions precedent to the merger was that Yancoal Australia would obtain maturity extensions of the $2.9 billion USD facility loan and the $140 million USD bilateral facility so that the repayments due on December 16, 2012 ($1.015 billion USD total due on this date) and December 16, 2013 ($1.015 billion USD total due on this date) would be extended until at least December 16, 2017 and December 18, 2017 (a maturity extension of five years). In 2012, Yancoal Australia received non-binding term sheets from the lenders for extensions, proposing to extend each of the facilities' repayment schedules from 2012 to 2017, 2013 to 2017, and 2014 to 2019, with an increase in the interest rates to USD-LIBOR plus 2.80% per annum on and from the original due date for that repayment amount (December 16 of 2012, 2013, and 2014), with an additional annual extension fee of 0.20%. As of April 2012, Yancoal was actively negotiating the extension with its lenders. Then, on August 8, 2012, BOC and CCB entered into an agreement with Yancoal to amend the loan facilities. BOC and CCB extended the maturity period and repayment schedule (grace period) of the $2.9 billion USD loan and the $140 million USD loan by five years and to 2017, 2018, and 2019, respectively. This extended the maturity period and grace period of the $2.9 billion USD loan to 10.166 years and 8.166 years, respectively, and the maturity period and grace period of the $140 million USD loan to 10 years and eight years, respectively. The interest rate on the $2.9 billion USD facility was increased to LIBOR plus a margin of 2.8% upon the passing of each original repayment date (i.e. at December 2012, the margin on the originally due $870 million USD portion was increased to 2.8%, while the other portions would retain a 0.75% margin until the reaching of their respective original repayment dates in December 2013 and 2014). The interest rate on the $140 million USD facility was increased to LIBOR plus a margin of 2.8% upon the passing of each original repayment date (i.e. at December 2012, the margin on the originally due $45 million USD portion was increased to 2.8%, while the other portions would retain a 0.85% margin until their respective original repayment dates in December 2013 and 2014). In addition to the extension and interest adjustments, the amended syndicated facility and the ancillary facility included the following financial covenants: an interest cover ratio of no less than 1.15 on June 30, 2015; a consolidated net worth of no less than $1.6 billion AUD after adjusting for certain unrealized foreign exchange impacts, on December 31, 2014; and a gearing ratio of no more than 0.80 on December 31, 2014. Projects ID#97137 and #110824 capture the restructuring of the $2.9 billion USD syndicated loan. Record ID#97138 captures the restructuring of the $140 million USD loan. By 2014, Yancoal was in danger of failing to the financial covenants of its bank facilities, without an injection of additional capital. In November 2014, proceed to offer subordinated capital notes (SCNs), with the rights issue intended to be used to repay $1.8 billion USD of existing debt to Yanzhou, reducing the gearing under the bank facilities and thus remaining in compliance with the financial covenants. BOC and CCB conditionally offered a three-year extension of the syndicated facility if the rights issue proceeded. BOC and CCB also offered to provide a waiver to extend the first test date for the interest cover ratio covenant to June 30, 2016 and to treat the SCNs as equity for the purpose of calculating each financial covenant. Yanzhou planned to subscribe for the full amount of the SCNs, which, if converted into shares, could give Yanzhou 98.8% interest in Yancoal if no other shareholders exercised their rights to subscribe. Other shareholders in Yancoal filed a complaint to Australian regulators; on December 12, 2014, the Australian Government's Takeovers Panel ruled that the Yanzhou could only convert the SCNs with the approval of the non-Yanzhou Yancoal shareholders or if it doing so would maintain its current voting power. Then, in 2014, BOC and CCB again extended the maturity period and repayment schedule (grace period) of the syndicated facility and the $140 million USD loan by three years and to 2020, 2021, and 2022, respectively. This extended the maturity period and grace period of the syndicated facility to 13.166 years and 11.166 years, respectively, and the maturity period and grace period of the $140 million USD loan to 13 years and 10 years, respectively. Projects ID#97139 and #110825 captures the extension of the $2.9 billion USD syndicated loan. Record ID#97140 captures the extension of the $140 million USD loan. Under this extension, this was the repayment schedule breakdown for the syndicated facility: $300,000,000 USD due on June 16, 2020; $569,655,172 USD due on December 16, 2020; $300,000,000 USD due on June 16, 2021; $569,655,172 USD due on December 16, 2021; $300,000,000 USD due on June 16, 2022; and $560,689,656 USD due on December 16, 2009. On December 31, 2016, Yancoal Australia fully repaid the BOC provided $140 million USD bilateral loan facility, which was restructured into a bank guarantee facility with the same limited. When Yancoal Australia acquired Coal & Allied, the financial covenants for the syndicated facility were adjusted beginning from September 1, 2017, with the following covenants to be tested half-yearly: an interest cover ratio to be no less than 1.15 for the 12-month period ending June 30, 2017 and 1.40 from September 1, 2017 to December 31, 2017; a gearing ratio not to 0.9, 0.8, 0.75 and 0.75 for the years ended December 31, 2015, 2016 and 2017 and the six months ended June 30, 2018 respectively; the consolidated net worth of the Group would be no less than $1.6 billion AUD for the years ended December 31, 2015 and 2016, $3 billion AUD for the year ended December 31, 2017 and six months ended June 30, 2018. The $2.9 billion USD syndicated facility was fully drawn (disbursed) at its 2009 inception. In 2012, Yancoal Australia repaid $100 million USD of the $2.9 billion USD facility to CDB. In 2013, it repaid $100 million USD; in 2014, it repaid $99 million USD. As of December 31, 2015, the outstanding balance was down to $2,600,000,000 USD. In 2017, Yancoal repaid $150 million USD under the syndicated facility, reducing the balance to $2.450 billion USD. In May 2018, Yancoal Australia repaid $450 million USD under the syndicated facility; in June 2018, it repaid another $50 million USD, leaving an outstanding balance of $1.950 billion USD as of June 30, 2018. On August 23, 2018, it repaid $300 million USD using proceeds of a $300 million USD term debt facility from a syndicate of seven domestic and international banks party to a $1 billion AUD bank guarantee facility, lowering the outstanding balance to $1.650 billion USD. On September 17, 2018, it repaid $75 million USD; on October 17, 2018, it repaid $50 million USD, lowering the outstanding balance to $1.525 billion USD. The principal activities of Felix were the exploration and extraction of coal resources and the operation, identification, acquisition, and development of resource projects (mostly coal) in Australia. The acquisition of Felix Resources included Felix's interests in several assets: an 80% interest in the Moolarben Coal Mine, a 60% interest in the Ashton Coal Mine, a 100% shareholding in Yarrabee Coal Company Pty Ltd (owner of the Yarrabee Coal Mine), a 51% interest in the Minerva Coal Mine, a 51% stake in the Athena coal exploration project, a 100% interest in the Harrybrandt coal exploration project, a 100% interest in Wilpeena tenements for coal exploration a 100% interest of the Ultra Clean Coal technology (UCC). In December 2010, Yancoal sold the 51% stake in the Minerva Coal Mine to Sojitz Corporation. The Moolarben Coal Mine was located 40 kilometers northeast of the town of Mudgee in central western New South Wales; it consisted of an existing open-cut mine producing thermal coal for export and an underground thermal coal development project. The Ashton Coal Mine was located 94 kilometers northwest of Newcastle and 12 kilometers northwest of Singleton in the Hunter Valley in New South Wales. The Yarrabee Coal Mine was an open-cut coal mine located in the Bowen Basin, approximately 150 kilometers west of Rockhampton and 280 kilometers northwest of the Port of Gladstone, in Queensland. The Minerva Coal Mine was an open-cut coal mine located in 300 kilometers west of Gladstone in Queensland. The Athena coal exploration project was located adjacent to, and north of, the Minerva mine, in central Queensland, with an exploration permit that covered an area of approximately 27,000 hectares. The Harrybrandt coal exploration project was located near the township of Nebo in central Queensland. The Wilpeena coal exploration project was located in a tenement in the Wilpeena area in central Queensland, north of the Yarrabee mine and the Mackenzie River. The UCC technology included a pilot plant located at Cessnock in the Hunter Valley, New South Wales, designed to chemically reduce the amount of ash in the processed coal, for more efficient burns and less carbon emissions.