Speculation Abounds Over In Whose Favour The China-bhp Rumour Works

The Age

Thursday April 10, 2008

John Garnaut, Beijing with Barry FitzGerald and Tim Colebatch

SOURCES in China close to BHP Billiton and its takeover target, Rio Tinto, have dismissed speculation that a state-owned Chinese entity was being prepared to plunge more than $US20 billion ($A21.6 billion) into a 10%-plus stake in BHP.

But the speculation in an Australian national daily that China would follow up the $US15 billion acquisition of a 9% stake in Rio in February by the state-owned Chinalco with a plunge into BHP was enough to push BHP shares to a four-month high. BHP shares closed $1.51, or 3.7%, higher at $41.91. While up strongly, the shares nonetheless closed well short of the day's peak of $42.46 as investors queried if there was any merit in the speculation.

Rio, which is fighting a hostile scrip bid from BHP, was frustrated by the speculation as Rio shares only rose 48? or 0.34% to $137.88. That was compared with the imputed value of the spurned BHP bid of $142.49 a Rio share. Rio was left to ponder what was the motivation for the speculation.

Without confirmation of the speculation, conspiracy theories abounded. Did it serve BHP's bid aspirations while also compelling Prime Minister Kevin Rudd to lock BHP's back door by using his China visit to warn the Chinese off from an assault on Australia's resources champion?

Or was the speculation aimed at having a "boring" business story on front pages during Mr Rudd's visit rather than the more prickly subjects of Tibet and the growing protests in the Olympic torch relay.

There was general agreement among company watchers that either way it was cut, the Chinese flagging their interest in buying $US20 billion of BHP was pretty dumb. Witness yesterday's sharp share price rise.

Mr Rudd yesterday reiterated that foreign investment was still welcome in Australia, while indicating that some investment was more welcome than others.

Asked about the possibility of a Chinese bid for BHP, he said: "I would think that any significant foreign investment application should be considered by FIRB and taken on its merits."

Mr Rudd emphasised that China was not unique in having internationally acquisitive government-controlled entities, listing similar bodies in the Middle East and Russia. "A whole lot of governments around the world are assessing how you regulate capital flows," he said.

His Government would always defend the national interest, he said. "Australia is an open market when it comes to foreign investment. Our approach is still one of being open to foreign investment flows," he said.

Any Chinese Government bid for BHP shares would require approval from Treasurer Wayne Swan, after advice from the Foreign Investment Review Board, the same body that approved the $15 billion purchase of a 9% slice of Rio Tinto by China's government-owned aluminium producer Chinalco, in partnership with Alcoa.

Mr Swan yesterday declined to comment on the speculation of a bid for BHP shares. A spokesman said it was inappropriate for the Treasurer to make any comment on "actual or alleged proposals for acquisitions".

Investments by foreign companies in minority shareholdings in companies normally require approval only if they propose bidding for 15% or more of the stock. All investments by governments and their agencies, however, require screening (unless by the US Government).

In February Mr Swan published the six criteria that FIRB applies to proposals by foreign governments and their agencies, and emphasised that approval required the Government to determine in each case "whether particular investments by foreign governments and their agencies are consistent with Australia's national interest".

"The Australian Government welcomes foreign investment, because it can make an important contribution to prosperity and the development of our industries and resources," Mr Swan said. "The purpose of (the) screening regime is to ensure that such investment is consistent with our national interest."

Of the six criteria, only two are relevant to a bid for BHP shares. The first states that the Government "will focus on the extent to which the prospective foreign investor operates at arm's length from the relevant government". The last states that it will consider whether an investment "may impact on the operations and directions of an Australian business, as well as its contribution to the Australian economy and broader community".

The guidelines do not make it clear how either applies to the purchase of a minority shareholding. The Rio decision suggests they pose no barrier. -- With BARRY FitzGERALD and TIM COLEBATCH

© 2008 The Age

Back to News Index | Back to Home