Snubbed China may apply anti-monopoly law to Rio Tinto-BHP Billiton deal news
17 June 2009

After being stumped out of its biggest-ever overseas investment last month, China is now planning to strike back by scuttling the Rio Tinto-BHP Billiton mining joint venture by applying its own anti-monopoly law.

After its elaborate propsal for a $19.5-billion investment in Rio for an 18-per cent stake and board seats fell apart, China has retaliated with its ministry of commerce (MoC), yesterday saying that China's anti-monopoly law would apply if the revenue of the Rio Tinto - BHP Billiton Pilabra mining joint venture exceeded a certain amount.

Debt-ridden mining giant Rio Tinto had terminated its $19.5-billion planned deal with Chinese giant Chinalco on 5 June 2009, under sustained opposition from shareholdrs,  opting instead to raise $15.2 billion from existing shareholders and another $5.8 billion through a new iron ore joint venture with its arch rival BHP, whose sustained acquisition advances it had rebuffed since 2006. (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issueRio-BHP team up for mining venture)

Cash-strapped Rio, which had almost $40 billion of debts in February 2009, had to meet an October 2009 deadline to repay $8.9 billion bond dues. Chinalco offered to inject $19.5 billion by raising its overall stake in Rio from 9 per cent to 18 per cent and demanded two seats on Rio's board.

The deal, however had evoked widespread opposition from the public, politicians, shareholders and arch rival BHP Billiton on the issue whether the investment from the state-owned entity was in Australia's national interest. (See: Chinalco-Rio Tinto deal fuels political storm  / Rio Tinto's majority shareholders oppose Chinalco deal at UK AGM)

BHP Billiton believed that the Chinalco-Rio Tinto deal would give the Chinese privy to inside information of pricing of minerals since Chinalco is also a major buyer, both at Rio and BHP Billiton.

Under China's anti-monopoly law, a company whose global revenue is more than 10 billion yuan ($1.47 billion) and its revenue in China is more than 2 billion yuan, needs the Chinese government's approval prior to consolidation.

An anti-monopoly review is also considered mandatory if the two companies' revenue in China in the previous fiscal year exceeded more than 400 million yuan.

China's MoC spokesman Yao Jian told reporters that BHP Billiton and Rio Tinto being the world's second and third-largest iron ore suppliers, collectively account for 80 per cent of Australia's iron oreexports or 36 per cent of the world's total.

The whole of Australia accounts for nearly a fifth of global iron ore output and both Rio Tinto and BHP Billiton collectively exported 270 million tonnes of iron ore in 2008.

Of the 270 million tonnes of iron ore exported by both the miners, 70 per cent was exported to China, which was half of China's iron ore imports in 2008 with BHP Billiton's sales revenue in China was $11.7 billion while Rio Tinto's was $10.8 billion.

According to China, the Rio Tinto-BHP Billiton joint venture for developing Western Australia's Pilbara mines will bring together Rio's 200 million tonnes a year and BHP's 130 million tonnes a year, will affect global supply and China being the world's biggest iron ore importer, is concerned about it.

The same concern made Chinalco team up with Alcoa Inc to take a 12-per cent stake in Rio Tinto, with Chinalco taking 9 per cent and Alcoa 3 per cent, to scupper BHP Billiton's sweetened hostile $147.4 billion acquisition bid in Rio Tinto in 2007. (See: BHP Billiton raises offer for Rio Tinto to $147 billion).

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Snubbed China may apply anti-monopoly law to Rio Tinto-BHP Billiton deal