The proposed plans are part of the company’s strategy to keep afloat its 78%-owned Australian unit, which is hit by five-year low coal prices.
Earlier this year, an attempt to privatise YAL was failed after YAL’s shareholder, Noble Group, refused the plan.
YAL chief executive Reinhold Schmidt said: "Yancoal continues to take the necessary steps to reduce its gearing, improve operational efficiencies and deliver significant cost savings to weather the challenges of an increasingly competitive marketplace."
YAL is planning to raise $2.3bn through a subordinated capital notes rights offer to shareholders with Yanzhou, to offload its debt and invest in its existing operations.
If Yanzhou converts the notes into shares and no other shareholders does, the Chinese firm will have majority stake of 90% in YAL which will allow the former to make a compulsory bid for the remaining shares.
Yanzhou board secretary Zhang Baocai was quoted by Reuters as saying: "Yanzhou Coal will acquire all the available convertible notes we are able to acquire.
"If it turns out that we are the only shareholder purchasing the notes, then we will be able to secure a 98 percent stake in Yancoal after the conversion. But there is still a lot of uncertainty."
Yanzhou will also provide around A$1.4bn ($1.2bn) to facilitate fund distributions on the notes over a five-year period.
