Australia approves China's bigger slice of mining giant
Updated
The Australian Government has given approval for a Chinese Government owned company to buy a bigger slice of mining giant Rio Tinto. It's the first major test of Canberra's new tougher rules governing foreign acquistions.
Presenter: Karon Snowdon
Speaker: Michael Heffernan, Senior Client Advisor with Austock Brokers; Australian treasurer Wayne Swan.
- Listen:
- Windows Media
SNOWDON: Australia's Treasurer Wayne Swan has approved the Chinese company Chinalco raising its stake in Rio Tinto to almost 15 per cent.
Back in February, Chinalco paid 15 billion US dollars to buy 12 per cent of the London shares of Rio, giving it 9 per cent of the total group which is also listed in Sydney.
Chinalco didn't first seek Canberra's approval because it said the stake was below the 15 per cent trigger level.
When it submitted a retrospective application two months later in April, it sought approval to raise its London shares to just under 15 per cent or nearly 11 per cent of the group.
That bigger slice has just been revealed publicly and approval given.
This is a reading of Wayne Swan's statement.
SWAN: I have decided to raise no objections under Australia's foreign investment policy to Chinalco acquiring a shareholding interest of up to 14.99 per cent of Rio Tinto Plc.
SNOWDON: But there are conditions.
Chinalco has agreed not to raise its shareholding any higher without fresh approval and not to seek a seat on the Rio board while it holds less than 15 per cent.
In the wake of Chinalco's sudden raid in February the Australian government raised its own stakes.
It published tougher foreign investment rules governing foreign companies with government links, especially sovereign funds.
That's what Chinalco is.
While its described as an aluminium company - in fact the world's third biggest with assets of 55 billlion dollars, its website states: Aluminum Corporation of China (CHINALCO), is an investment management and holding company authorized by the state, is a backbone state-owned enterprise under direct administration of the central government.
Wayne Swan's statement also says.
SWAN: While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership.
SNOWDON: He added the undertakings agreed with Chinalco are acceptable for protecting the national interest.
While questions remain over Chinalco's initial disclosure, the bigger issue says Canberra is to ensure key national industries don't fall into foreign hands.
Or in this case to prevent a major customer of Australian commodities becoming a producer as well.
No doubt watching developments closely, BHP wont comment on the latest maneuverings in the biggest mining chess game in town.
Analysts speculation about Chinalco's motives in going after Rio focus on two key points.
The Chinese company wants to get Rio's aluminium business or to block BHP's takeover bid for Rio at Beijing's urging. China is undeniably concerned at the power a combined Rio-BHP would wield in iron ore markets and so affect the price of steel.
Michael Heffernan, Senior Client Advisor at Austock Brokers says Chinalco's shareholding is unlikely to supply a killer blow to BHP's takeover ambitions.
HEFFERNAN: Clearly it creates a little bit more excitement. It complicates it a bit without knocking it on the head.
SNOWDON: The bigger problem for BHP will be passing through the competiton eye of the needle.
Australia's competition watchdog the A-triple-C said last week the merger can be expected to increase the global price of iron ore while Europe's comission is also looking into the merger.
HEFFERNAN: It's in my view a 50-50 chance BHP will cuceed on that. But look the European Commission is in my view the biggest hurdle BHP will face in the takeover battle.
