State-owned China National Offshore Oil Co (CNOOC) ran into a wall of xenophobia that stopped dead its bid for the U.S. oil company Unocal in 2005. With the world even more sensitive to China’s global scavenge for natural resources, state-owned Aluminum Corporation of China (Chinalco) is seeking to preempt similar objections to its investment in Australia’s Rio Tinto.
Chinalco has taken a 9% stake in Rio in partnership with Alcoa of the U.S. Rio is trying to fend off the $140 billion takeover interest of fellow Australian miner BHP Billiton, prompting speculation that Chinalco might make a bid or be positioning itself to buy Rio’s aluminum assets, notably Alcan. A 15% stake would trigger a review under Australia’s inward foreign investment rules. BHP has to make a formal bid Wednesday or walk away for six months under takeover rules.
Though still shy of that, Chinalco has voluntarily submitted itself to an informal review. Australia Prime Minister Kevin Rudd and Foreign Minister Stephen Smith met Foreign Minister Yang Jiechi and Natural Resources Minister Martin Ferguson met Chinalco president Xiao Yaqing in Canberra this morning to discuss the investment.
Any deal that leaves a state-controlled foreign company controlling significant Australian natural resources would potentially put Australia in a delicate position with one of its leading trade partners. The government has been dancing around the question of whether either a bigger Chinalco stake or a full bid would fall foul of national-interest provisions of the foreign investment rules.
In 2001 John Howard’s government blocked Royal Dutch Shell’s planned $9.1 billion takeover of Woodside Petroleum, the Australian oil and gas group, on just such grounds.
Meanwhile, on a much smaller scale Sinosteel looks set to by Australia’s iron-ore miner Midwest Corporation for $1.1 billion, now Murchison Metals, the Australia-listed mining group backed by Mitsubishi of Japan has abandoned its bid. Sinosteel has made a highly conditional offer for Midwest but has yet to make a formal bid despite building a 20% stake.
One final thought: if Chinalco does end up buying Alcan off a merged BHP-Rio, that will likely trigger national-interest reviews from the Canadian and French governments. More delicate dancing to come.