labels: M&A
Chinalco-Rio Tinto deal fuels political storm news
18 March 2009

The $19.5-billion deal between China's Chinalco and global mining major Rio Tinto is running into trouble following opposition from political corners and from its fourth-largest shareholder, Australian Foundation Investment Co (AFIC).

Australia's Foreign Investment Review Board (FIRB) decided on Tuesday to extend the review by 90 days, considering the complexity of the issue.

This would delay the final decision on the deal by the Australian treasurer Wayne Swan, till June.

The deal between Chinalco, China's biggest aluminum company, and the debt-laden Rio Tinto (comprising two dual-listed companies - Rio Tinto Plc of UK and Rio Tinto Ltd of Australia), announced last month would double Chinalco's stake in Rio Tinto to 18 per cent from the present 9 per cent (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent)

However, the deal has been opposed by politicians, industry experts, arch rival BHP Billiton, apart from the shareholders (See: Chinalco-Rio Tinto deal may run into rough weather).

The political uproar over the Chinalco and other Chinese investments in Australian mines grew this week. The upper house senate is expected to endorse an inquiry into whether foreign investment and proposals from state-owned entities to invest in Australian companies are in Australia's national interest.

"The Australian government would never be allowed to buy a mine in China. So why would we allow the Chinese government to buy and control a key strategic asset in our country. Stop the Rudd government from selling Australia," senator Barnaby Joyce said in Canberra.

Bob Brown, leader of Australian Greens, moved on Tuesday to set up an inquiry, but was blocked in the senate after Joyce said he would move a similar motion on Wednesday, to refer the issue to the senate economics committee.(See: Greens see red in Rio Tinto-Chinalco deal)

"If the Chinalco deal with Rio Tinto goes ahead, the communist bosses in Beijing will exert control over the management of Rio Tinto's Australian mineral resources," Brown said.

Melbourne-based AFIC with an $80-million stake in Rio Tinto said that ''significant influence has been given to Chinalco with no premium paid. The proposed deal raised potential conflicts of interest over investment decisions.''

AFIC added that they are deeply concerned about Chinalco becoming involved with the running of the business.

''We are assessing the proposal from the perspective of being a long term investor,'' it said.

Australian trade minister Simon Crean said that he is aware of the concerns raised by AFIC. "That's what the national interest test is about. Their concerns will be taken into account when the treasurer makes the decision," Crean told reporters.

Crean added that China is Australia's largest bilateral trading partner and the second largest export market, and Australians need to understand the importance of two-way investment between the two countries.

Regarding the free trade negotiations underway with China, Crean said it is not being used as a bargaining chip over the foreign investment decisions.

"Not at all. It hasn't come into it. We've made no connection between the two. Neither have the Chinese," he said.

"The approach that we are pursuing with China is no different than we are pursuing with every other country that we are trying to strengthen and build our economic relationship with."

Rio Tinto has argued that the Chinalco deal would give it access to cheaper financing, a badly needed benefit for the company which is saddled with $39 billion in debt. "Shareholders are entitled to their view, and we continue to listen to them," a Rio Tinto spokesman said.

In its annual report, released on Tuesday, Rio Tinto cautioned that if the Chinalco deal fails, it might have to renegotiate its $40 billion in credit facilities "on more onerous terms."

After obtaining the approval from Australia's treasurer, Rio Tinto plans to table the deal as an ordinary resolution which would require support from a simple majority to go ahead. However, some UK shareholders demand to put up the deal as a special resolution which would require 75 per cent support.

Meanwhile on Tuesday Rio Tinto announced the appointment of Jan du Plessis as the new chairman of the board with effect from the conclusion of the annual general meeting of Rio Tinto on 20 April 2009 when the current chairman Paul Skinner will retire. Plessis joined the boards as a non executive director on 1 September 2008.


 search domain-b
  go
 
Chinalco-Rio Tinto deal fuels political storm