Meritz Financial Group, a non-banking financial services firm in South Korea, has offered a $325 million subordinated loan to finance the $2.25 billion acquisition of Rio Tinto’s Kestrel coal mine in Australia by a consortium of EMR Capital and an Indonesian coal company.
It was the first buyout financing provided by a South Korean institution for a major mining asset overseas, highlighting South Korean funds’ push into a broader range of global alternative investments.
Rio Tinto, a mining giant, recently announced the sale of its 80% stake in Kestrel underground coal mine for $2.25 billion to the consortium of resources-focused private equity firm EMR Capital and PT Adaro Energy TBK.
For the subordinated loan with a five-year term, Meritz Financial beat the competition from Nomura Securities at the last minute by lowering interest rates by 1% point to 12%.
Additionally, Meritz attached no condition, unlike Nomura which proposed 13% interest rates with a call option attached, MoneyToday, a South Korean newspaper, reported on August 1.
Sources with knowledge of the deal confirmed the report.
The subordinated debt was sold by Kestrel Coal Midco Pty Ltd.
Meriz Securities Co. Ltd., Meritz Fire & Marine Insurance Co. Ltd. and Meritz Capital Co. Ltd. participated in the debt financing, led by Meritz Securities vice chairman Hee-moon Choi.
On top of the subordinated loan, the EMR Capital-led consortium has raised $1.16 billion in senior debt and $1 billion in equity financing to fund the transaction, arranged by Standard Chartered.
The total cost of the deal is estimated at $2.75 billion, including financial expenses, according to the report.
Kestrel coal mine is located in central Queensland, Australia. It produces mainly coking coal, a key ingredient of steelmaking, for export markets.
Meritz Financial Group made an aggressive bet on the subordinated loan, while global investors remain cautious about fossil fuels because of environmental concerns.
But financial industry sources see no challenge of collecting the debt as long as coking coal prices stay at $110 per ton, or above.
Currently, spot market prices of hard coking coal are between $170 and $180 per ton.
By Taeho Lee
<Edited by Yeonhee Kim>