Chinese Waiting In The Wings
Sydney Morning Herald
Thursday November 27, 2008
THE chairman of BHP Billiton, Don Argus, wanted to create a national champion by driving home his dream of merging BHP with its long-time adversary in the global resources scene, Rio Tinto.
But the fear following BHP's abandonment of the $103 billion takeover bid is that the seeds have been sown for a severely share-price damaged and financially stretched Rio to pursue its next best option - a deal with the Chinese. Rio already has the state-owned aluminium group Chinalco on its share register, with a 9 per cent stake held in partnership with Alcoa of the US as the junior partner. It was acquired in February at prices four times the current level. The clear intent of the acquisition was to block BHP from moving to outright control of Rio. It succeeded in the sense that BHP was forced to move the minimum acceptance condition in its bid from 90 per cent to 50 per cent. And Rio's chairman, Paul Skinner, happily volunteered this week that Rio's "dialogue" with the Chinese "has developed" since February.While Chinalco/Alcoa are now wearing a $US10 billion ($15.5 billion) loss on their February counter-attack to BHP, they are relishing the prospect of now dealing on asset joint ventures and sales with a continuing independent Rio. Chinalco is essentially an aluminium group with some broader interests. Alcoa is pure aluminium. But Chinalco's state-owned status has long suggested that its foray onto the share register had as much to do with Beijing's interest in aluminium as it did with iron ore, coking coal and copper - and ensuring that BHP did not work its way into controlling the lot. Speculation is growing after the abandonment of the BHP bid that Chinalco, and China, could seek to take advantage of Rio's shell-shocked share price and its developing dialogue with Rio to march to at least 15 per cent of the company (it has Federal Government approval to do that). Resources analyst at EL & C Baillieu, Ray Chantry, said that it was possible that Rio could place 5 per cent of its equity above the market price - Chinese companies have, and are, already doing this in Mount Gibson and Gindalbie - moving up to 15 per cent and bolstering Rio's balance sheet.
© 2008 Sydney Morning Herald