Market Spotlight May Shift To China
The Age
Saturday November 17, 2007
THE market spotlight may soon focus on a Chinese stake in the world's fourth-largest iron ore producer, as investors watch how China will respond to BHP Billiton's bid for Rio Tinto.
China Development Bank, one of the country's richest and most energetic offshore investment companies, told foreign analysts this week that it had taken a stake in Anglo American, rather than Rio Tinto as had been reported. "I have heard similar from what I believe to be a reliable source - which does not mean it's true - that CDB has taken about a 1% stake in Anglo American," said Glyn Lawcock, head of resources research at UBS Australia. "We see this as an investment." At press time last night, it was not clear whether China Development Bank had built a new stake or was simply holding one that was purchased before the BHP bid for Rio was made public. "The CDB did acquire a small stake in Anglo a while back," Anglo American spokesman James Wyatt-Tilby said. Yesterday, China Development Bank again denied to The Age that it had bought or planned to buy shares in Rio Tinto - but could not confirm its plans with Anglo American.The investment in Anglo American is probably the first Chinese investment in a global mining company. Cynthia Carroll, Anglo's chief executive, told a mining conference in Beijing this week that her company wanted to work with Chinese investors. "For every mining company today there is a clear choice: is China just a market or a place for partnership and wider involvement? Uniquely among Western mining companies, Anglo American has decisively chosen the latter course." However, China watchers said it was highly unlikely a Chinese bank or general investment vehicle would attempt an outright purchase of a global mining company such as Rio Tinto or Anglo American because China could not afford to be seen to be using its capital might for geo-political ends. If China reacts in a substantial way to BHP's bid for Rio, some analysts believe it would do so by injecting cash into one of China's large steel makers through the parent of a large listed steel company - and instructing it to buy a stake in a global iron ore miner. "That way they can make it look like an ordinary part of the company's business rather than political interference," one analyst said. "I rate the likelihood at around 20%." But speculation that Chinese steel makers are moving to buy shares in Australian mining companies appears premature, as those steel makers are still waiting for direction from the Chinese Government. Industry sources say China's big steel makers have not yet met to discuss how to respond to the BHP proposal to buy Rio.
© 2007 The Age