China planning to buy stake in BHP Billiton

China planning to buy stake in BHP Billiton
Reuters - Wednesday, April 9 02:22 am

SYDNEY (Reuters) - China is planning to buy a more than 9 percent stake in miner BHP Billiton in a bid to interfere in BHP's proposed acquisition of rival Rio Tinto , The Australian newspaper reported on Wednesday.

Chinese companies and officials have expressed strong opposition to BHP's $135 billion (68.6 billion pounds) bid for Rio, citing concern that a combined company would have too much control over the prices of raw materials vital to China's booming economy.

Citing unidentified sources in Beijing, the report said Chinese authorities had yet to decide which state-owned financial institution might take a lead role in seeking sellers from within BHP's diverse shareholder base.

A BHP spokeswoman declined to comment.

"I always thought that was the right way for them to play this, said Adnan Kucukalic, equity strategist at Credit Suisse First Boston.

"Effectively, they are the ones underwriting the entire resource sector. If I was confident about my demand for resources, why wouldn't I hedge myself against that? I would be owning part of BHP and Rio."

Chinese state-owned Chinalco bought a 9 percent stake in Rio Tinto for $14 billion in February, just weeks before BHP launched its all-stock offer. Rio has rejected the BHP bid.

The latest report comes as Australian Prime Minister Kevin Rudd visits Beijing on Wednesday to meet his Chinese counterparts.

Australian Resources Minister Martin Ferguson said the government would treat any request by a foreign company for approval to take a stake in an Australian company in a fair and open manner.

"Our support of foreign investment is long standing and non-discriminatory, particularly when it is in our national interest and facilitates the development of Australia's resources for the benefit of Australians," he said.

Approval by Australia's Foreign Investment Review Board is required for stakes in local firms of over 15 percent.

On Tuesday, BHP's London-listed shares jumped 4.6 percent amid market talk that Baoshan Iron and Steel Co , China's biggest steel maker, may buy a BHP stake. BHP's New York-listed shares jumped 5.2 percent.

On Wednesday, BHP shares were up 4.5 percent at A$42.22 at 0111 GMT in Sydney trading

Analysts say the potential merger of BHP and Rio could further concentrate the commodities market and give iron ore and coal producers significant pricing clout. Chinese steel mills see this as a disadvantage, which has prompted calls to secure the availability of raw materials.

The term price of iron ore has risen fivefold since 2001, while coal prices have surged this year because of strong demand from China and supply disruptions in Australia caused by port conditions and poor weather.

Chinese companies are also looking to buy more mining companies in Australia to break a dependence on supplies from BHP and Rio.

Sinosteel Corp last month offered A$954 million to acquire iron ore miner Midwest Corp , while China Metallurgical Corp had agreed to pay $300 million to buy a Cape Lambert Iron Ore Ltd project.