Swan backs Chinalco's Rio stake
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Hot property: A pour at a Rio Tinto plant in Perth. (Getty)
Federal Treasurer Wayne Swan has backed the Chinese aluminium giant Chinalco in its bid to up its stake in the mining group Rio Tinto.
Mr Swan has approved Chinalco's move to acquire up to almost 15 per cent of shares in Rio's London Stock Exchange-listed arm.
That equates to about 11 per cent of the group, which includes the Australian-listed Rio Tinto Ltd.
In a statement, Mr Swan said he was raising no objections on the basis that Chinalco had undertaken to seek Government approval for any larger investment and not to pursue a seat on the Rio Tinto board.
While welcoming foreign investment, Mr Swan repeated a commitment to "carefully examine national interest issues where these arise in relation to foreign sovereign ownership".
"I have determined that the undertakings agreed with Chinalco are acceptable for protecting the national interest in this matter," Mr Swan said.
The decision provides a new twist in the $160 billion BHP Billiton bid to swallow up Rio - BHP's chief rival.
It is widely seen as a blocking manoeuvre to thwart the BHP merger bid.
Mining analyst Stephen Bartrop, from independent research house Stock Resource, says he is not surprised by the Treasurer's decision given the competition concerns about the BHP bid.
"In essence, by allowing Chinalco to lift their stake to really what is around 11 per cent of the combined group, it's basically providing the opportunity so that Tom Albanese at Rio can defend any hostile bid," he said.
Rio Tinto says the decision reflects foreign investment rules and it has noted Chinalco's undertakings.
Chinalco says it is a strategic move but there is concern in China that the BHP-Rio mega-merger would dilute China's bargaining power for iron ore prices.
Even with the current level of competition, China pays top dollar to fuel its economic powerhouse.
This investment by the Chinese will be seen as a shrewd move, both in terms of its access to iron ore but also to aluminium.
More broadly, this is a display of Chinese muscle to the rest of the world, underscoring that their potential power and access to Western boardrooms is something that cannot be underestimated.
Chinalco's higher stake though will not be enough on its own to thwart BHP's bid for Rio Tinto.
BHP's bigger concern is winning the approval of competition regulators around the world.
In Australia, the Australian Competition and Consumer Commission (ACCC) has flagged concerns that the merged firm might have the ability and incentive to influence global supply and global prices for iron ore.
Last week, BHP's chief executive Marius Kloppers told the ABC that he remained confident about the company's plans, but hinted that any rival bidder for Rio might end up paying too much.
"The way we considered this right at the start of the transaction is that basically a takeover of Rio can only occur via one DLC (dual-listed company) to another which is what we're doing or as a cash bid," Mr Klopper said.
"Now I would assume that lack of synergies of any other bid, that would have to be higher so somebody would have to put $200 billion on the table in cash. That's a lot of money," he said.
Rio is due to release a multi-billion dollar half yearly result tomorrow.
The company's chief executive, Tom Albanese, has consistently said the BHP offer undervalues the company and has been standing firm.
But he has been building partnership with the Chinese to shore up Rio's foothold in the booming China market.
