New | Citic Group pulls investment in SouthGobi Resources given coal industry downturn

China’s largest conglomerate Citic Group’s merchant banking arm has pulled out of a US$28.7 million investment in debt-troubled Mongolia coking coal miner SouthGobi Resources amid a protracted slump of the coal industry.

“The conditions precedent to the agreement have not been fulfilled and Citic Merchant has informed the company that it will not be subscribing for shares in the company pursuant to the signed private placement agreement,” SouthGobi said in a filing to Hong Kong’s stock exchange late on Thursday.

Citic Merchants late last month agreed to buy new shares equivalent to 17 per cent of SouthGobi for US$28.7 million, while Swiss Life, the asset management firm of private bank SwissLife Banque Privee, has agreed to buy new SouthGobi shares equalling a 2 per cent stake for US$2.9 million.

The purchase price was a 20 per cent discount to the five-day average prior to the shares purchase agreements.

SouthGobi said it is “actively seek additional sources of financing to continue operating and meet its objectives, [including possible] coal offtake agreements, an interim loan and a revolving loan.”

A multi-year slump in the coal market, including coking coal used in steel smelting, has seen SouthGobi struggle to pay US$7.9 million of interests on a convertible debenture due to sovereign fund China Investment Corp in May this year.