BREAKFAST DEALS: China billion
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China hasn’t completely turned off Australia, with rumours of China Investment Corporation buying a $1 billion convertible note in Fortescue following its investment in Goodman Group. Also, Rio Tinto’s Stern Hu is expected to be formally arrested today, talk abounds of rival bid for Felix Resources and is Westfield following Westpac in tapping the bond market? Plus, news on ASIC’s insider trading investigations, a new $250 million oil IPO, Queensland gas deals and much more.
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Fortescue Metals Group
Trouble between Chinalco, the China Iron & Steel Association and Rio Tinto has not dampened the enthusiasm of other Chinese companies coming to our shores. And beyond Yanzhou Coal Mining's rumoured $3.5 billion bid for Felix Resources (see below), there is talk that Fortescue Metals Group could sell China Investment Corporation (CIC) a $1 billion convertible note. China Railway Group has also made a $15 million hostile bid for RMA Energy, a coal and uranium junior and there's talk of Chinese interest in coal seam gas company Arrow Energy. Back to Fortescue, Reuters has reported that the $200 billion Chinese sovereign wealth fund would make the investment to help fund the iron ore miner's expansion. CIC has been expanding its portfolio of direct natural resources investments of late, last month buying a 17.2 per cent stake in Toronto-listed Teck Resources for $US1.7 billion. CIC has also made a cornerstone investment in Australian property investment company Goodman Group. Fortescue, which already has a 17.55 per cent cornerstone investor in China’s Hunan Valin, has not made a statement on the report.
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Rio Tinto
Anglo-Australian mining giant Rio Tinto has made a statement that there has been no evidence presented supporting the detention of four of its staff. After Australian diplomats visited Rio's chief iron ore negotiator Stern Hu in prison for the second time, a new appeal was made to give Hu legal representation. Rio’s statement was partially in response to recent reports on a Chinese website affiliated with the National Administration for the Protection of State Secrets. The report – later retracted as somebody’s “personal opinion” and taken offline – made the bizarre accusation that Rio had made an extra $122 billion out of China over the last six years by selling its iron ore at prices only settled with insider knowledge. The fact that Rio has sold iron ore with a total value of less than half that over the period was not explained by the report’s author. The Australian has separately reported that Hu is expected to be formally arrested today, with the 37-day limit for mandatory detention now over. Hu and three Chinese colleagues have been accused of espionage and bribery but not formally charged. They were arrested on July 5.
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Felix Resources
Since entering into a trading halt ahead of the expected announcement of a $3.5 billion takeover bid from China’s Yanzhou Coal Mining, rumours have swirled that Xstrata, Vale or China Shenhua Energy could make rival bids for coal miner Felix Resources. Xstrata, which previously made a takeover bid for Gloucester Coal – before that was blocked by Noble Group, which later acquired it – is seen as a logical choice by several analysts. The Anglo-Swiss mining group, which is still yet to drop or improve its friendly merger offer for Anglo American, owns the Ulan mine in New South Wales, adjacent to Felix’s new Moorlarben project. Credit Suisse also raised its target price for Felix by 17 per cent to $24 per share. Elsewhere in the coal game, the Foreign Investment Review Board has approved Indian-controlled Gujarat NRE Minerals' hostile bid for Rey Resources. Another Indian company, Essar Minerals, is meanwhile in talks with New South Wales coking coal producer Caledon Resources.
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Bond market
Westpac Banking Corporation has moved away from the government guarantee, launching a $2 billion non-guaranteed bond with a coupon of 7 per cent. Following Macquarie Group’s recent $500 million non-guaranteed note issue in the US 144A market, the AA-rated lender has priced the issue at 110 basis points over swap. The bond was tranched into a $1.175 billion floating rate component and a $825 million fixed rate component. Westpac was the sole lead manager, with JPMorgan acting as co-manager. Westfield Group is meanwhile rumoured to be tapping the global bond markets instead of raising equity. The shopping centre owner raised $2.9 billion in February, diluting the Lowy family's holding by eight per cent. Sources have told Bloomberg that Asian lenders have already committed over $US1.4 billion for a $US1.25 billion forward start loan facility at 240 basis points above Libor.
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Wrapping Up
Frozen chicken scion Ben Ingham is among the parties named in an insider trading investigation being conducted by ASIC, according to BusinessDay. The Fairfax website says the corporate watchdog's investigation, which led to documents being seized from the Sydney office of Caliburn Partnership, is believed to be looking at transactions including Lion Nathan's merger with Coca-Cola Amatil and transactions involving Aquila Resources and Santos. Ingham used to work in mergers and acquisitions at KPMG, which BusinessDay says is also believed to have been asked to cooperate. It is not known in what context Ingham has been named. In other news, Deutsche Bank analyst John Hirjee has said Royal Dutch Shell’s partnerships with ConocoPhillips and Malaysia’s Petronas would make a tie-up with those firms in Queensland’s coal seam gas sector logical. There has been much talk of how consolidation in the Bowen basin and at the port of Gladstone would play out. Conoco is in a CSG joint venture with Origin Energy, while Petronas has partnered with Santos. Shell already has a 30 per cent stake in Arrow Energy’s Queensland gas interests (Arrow being subject to Chinese takeover rumours) and has been speculated to have eyes for BG Group as well. Elsewhere in the oil and gas space, Longreach Oil and Southern Cross Exploration have unveiled plans for a $250 million float of a new company, Offshore Oil. Marion Energy has meanwhile said that Goldman Sachs’s management of its North American asset sales is ongoing. Over in mining, rumours of an imminent capital raising for Boart Longyear, managed by Macquarie Capital and RBS, are heating up and in Canada, uranium miner Cameco Corporation is said to be planning the sale of its stake in Centerra Gold for $C600 million, while Toronto-listed but Perth-based Anvil Mining has secured $US200 million in equity and debt financing for a copper development in the Democratic Republic of Congo. Finally, United Airlines has declined to object to a joint venture between Delta Air Lines and Virgin Blue Holdings’ V Australia, India's Tata Motors has secured a £175 million loan for Jaguar Land Rover, weening itself off government support, and Pakistan's MCB Bank has bought Royal Bank of Scotland's operations in the country for $US87 million, or just 73 per cent of book value. No matter what you think of Pakistan, the price is a bargain.
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