The Australian government has approved a bid by China's state-owned Aluminum Corp. of China Ltd., or Chinalco (ACH), to raise its stake to 11% in mining giant Rio Tinto (RTP, RIO.L). The approval was granted by Wayne Swan, Treasurer of the Commonwealth of Australia, on Monday. Rio Tinto is fending off a hostile takeover bid by rival BHP Billiton (BHP, BBL, BLT.L).
Swan said that he approved the proposal by Chinalco to acquire up to 14.99% of the shares in Rio Tinto Plc, the London Stock Exchange-listed arm of Rio Tinto. A 14.99% stake equates to an interest of around 11% in the Rio Tinto Group, which includes the Australian-listed Rio Tinto Ltd. In February, a consortium led by Chinalco paid A$14.88 billion, or US$14 billion, to secure a 9% stake in Rio Tinto.
Swan said in a statement, "I have decided to raise no objections under Australia's foreign investment policy to Chinalco acquiring a shareholding interest of up to 14.99 per cent of Rio Tinto Plc on the basis of Chinalco making two undertakings."
He said Chinalco has undertaken it would not raise its shareholding above the current level without notifying and receiving fresh approval from the Australian government Further, Chinalco has undertaken that it would not seek to appoint a director of Rio Tinto Ltd. or Rio Tinto plc as long as it holds a shareholding in that company of below 15%.
"Any future proposal to increase its level of ownership above 14.99 per cent would require re assessment at that time against Australia's national interests under the Foreign Acquisition and Takeovers Act 1975," Swan noted.
He added, "While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership."
Swan said in early July that the government would pay particular attention to applications by foreign entities that seek control of assets where the entity is also a key consumer of the goods produced by the target.
However, a stake below 15% in Rio Tinto is not expected to enable Chinalco to block BHP's bid for Rio Tinto, although it would make the bid more difficult.
In May, media reports said Chinalco may be preparing to buy a stake in BHP Billiton Ltd., prompted by Beijing, in order to block BHP's proposed A$180.7 billion takeover of Rio Tinto over concerns about competition and pricing. China and its state-owned steel companies are against BHP's pursuit of Rio Tinto as the merged company would have major control over of the world's iron ore and coal markets.
Being the biggest buyer of metals, China has been hurt by a threefold rise in commodity prices since 2002, prompting producers, including Chinalco, to make overseas acquisitions. China needs raw materials to meet the needs of an economy that grew 11.4% in 2007, the fastest in thirteen years.
ACH closed Friday's regular trading at $21.73, up $0.03 or 0.14% on a volume of 0.91 million shares.
RTP closed Friday's regular trading session at $381.26, down $7.34 or 1.89% on a volume of 0.27 million shares. On the London Stock Exchange, RIO.L closed Friday's regular trading session at 5,179.00 pence, up 37.00 pence or 0.72%.
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