Australia okays Valin stake in Fortescue Metals

01 April 2009

Australia's treasurer Wayne Swan on Tuesday gave his approval for a $844-million (A$1.2 billion) investment by the Chinese steel producer Hunan Valin in Australia's Fortescue Metals Group (FMG). The decision comes amid growing concerns and political debates about Chinese investments in Australia.

The deal would allow Hunan Valin Iron & Steel Group to obtain a 17.5-per cent stake in FMG, the third largest iron ore producer in Australia after Rio Tinto and BHP Billiton. Hunan Valin is the ninth largest steel company in China. (See: China's Valin raises stake in Australian Fortescue Metals).

The approval is subject to "formal and strict undertakings" in relation to the board seat Fortescue has allotted for the chairman of Valin and comes with a set of conditions to shun trade rivalries including "marketing, sales, customer profiles, price setting and cost structures for pricing and shipping". Hunan Valin must not use their inside information when the companies are negotiating resource prices.

"These undertakings ensure consistency with Australia's national interest principles for investments by foreign government entities. They ensure the appropriate separation of Fortescue's commercial operations and customer interests, and support the market-based development of Australia's resources," Swan said.

FMG said companies seeking Chinese funds have to prove to the government that any such deals would not compromise on national sovereignty.

"In many ways, it does show up a yardstick as to how other companies can attract Chinese investment."  FMG's CEO Andrew Forrest said.