Centennial Coal argued Glencore’s use of derivatives, or cash-settled swaps, to secure more than 5% of Austral's shares was unacceptable. Glencore bought the shares and entered into the swaps after Centennial announced its bid. Glencore had built a direct stake of 4.9% in Austral and then began using cash-settled swaps with Credit Suisse First Boston and ABN Amro.
Centennial now owns 85% of Austral while Glencore directly owns 6.4% of Austral and holds equity swaps with CSFB and ABN Amro over a further 7.4%.
The panel said there was evidence Glencore planned “to accumulate its physical holdings and for each of the banks to accumulate the hedge shares, together constituting well over 5% of Austral Coal, without disclosing its interests above 5% to the market.”
It said Glencore “worked diligently” to avoid disclosing this to the market, adding Glencore's strategy went directly against the policy and objectives of the substantial holding provisions of the Corporations Act.
The panel stopped short of meeting Centennial’s request for the swaps to be unwound and the hedge shares disposed of. It requires Glencore to offer the shares back to the investors at the price it paid, a decision the Swiss-based trader is appealing. The decision is delayed until 8 July when the review panel meets.
The ruling is expected to put an end to the use of cash-settled swaps to conceal major holdings in listed companies.
Centennial also said problems with Austral’s Tahmoor longwall mine had been resolved and the mine was now profitable.
“In addition, since taking control, Centennial has implemented significant changes to shift rosters and stabilised the mine’s production. As a result, Tahmoor is expected to be the largest contributor to group profitability next year,” Centennial said.
