Yancoal is seeking $US2.5 billion ($A3.1 billion) from investors to fund its "strategically compelling" purchase of Coal & Allied from mining giant Rio Rinto.
Yancoal won a bidding war with Glencore in June to secure Coal & Allied and on Wednesday announced details of a 23.6 for 1 renounceable rights offer and a share placement to strategic investors to fund the deal.
Rio Tinto knocked back a $US2.5 billion ($A3.1 billion) offer from Glencore for the NSW Hunter Valley-based coal assets and recommended the Yancoal bid that will ensure Rio at least five years of $US240 million in royalty payments.
Yancoal chairman Xiyong Li said on Wednesday that the acquisition, totalling $US2.69 billion, will redefine the company's position in the global coal marketplace and transform Yancoal into Australia's largest pure-play coal producer.
"The strategic acquisition of Coal & Allied will redefine our position within the global coal marketplace and strengthen Yancoal Australia for the future," Mr Li said.
The rights offer is priced at 10 US cents per new share - a steep discount from the 39 Australian cents Yancoal shares last traded at before going into a trading halt on July 27.
The deal could give Yancoal, controlled by the New York, Hong Kong and Shanghai-listed coal giant Yanzhou, majority interests in three of the ten largest low-cost thermal coal mining operations in Australia.
Yanzhou is connected to China's Shandong Provincial government through Shandong's 70 per cent controlling stake in Yanzhou's majority owner, Yankuang Group.
If the amount raised falls below US$2.45 billion, the shortfall - up to US$1 billion - will be made available via a new loan facility from Yankuang, in terms approved by an independent board committee that includes a former Australian ambassador to China, Geoff Raby.
Yanzhou has committed to take up US$1 billion of its entitlements and the balance of the Entitlement Offer is underwritten to the combined value of US$1.3 billion, with Swiss company Glencore providing US$300 million.
Two Chinese-state connected investment vehicles China Cinda Asset Management Co, and Shandong Lucion (Luxin) Investment Holdings Group will underwrite the rest - US$750 million and US$250 million respectively.
On the funding side, Yancoal secured commitments from Shandong Taizhong Energy and the Tianjin-based commodity trader, General Nice Development, respectively to subscribe for US$100 million and US$50 million, respectively, and US$150 million in aggregate, in New Shares.
Shandong Taizhong and General Nice have both committed to a broader deal with Yancoal and entered into coal offtake agreements which will see future coal purchases from Yancoal.
The entitlement offer opens on Thursday 10 August.
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