Thursday, February 12, 2009

Should China Inc be allowed to control Australia's Rio?

Kohler: "Rio Tinto shareholders and the Rudd government should knock back Rio’s capitulation to the Chinese, due to be announced later today. If the details reported so far are correct, the deal looks to be a stinker – for the company and for Australia...

Cash panics are not a good time to make major, company-changing decisions, if it can be avoided. Rio is not only selling assets at the bottom of the cycle, having overpaid for Alcan at the top, it is also giving up a takeover premium and selling effective control to a customer."

Garnaut: "This afternoon, if all goes to plan, the rising stars of China's unique brand of state-backed enterprise will drive the country deep inside the Australian resources industry and into the top ranks of global capitalism...

There are many in China who champion Chinalco's bold move because it will "contain and control pricing power monopolised by multinational companies," as Liu Jipeng, a renowned economist, wrote this week in the Securities Times."

West: "The question can rightly be asked, should the Government be green-lighting a transaction which allows increasing and long-term Chinese control over key Australian resources?...

In the short to medium term it could be a ripper for Rio shareholders. The evidence, it would seem, is already in the stock price."

Bartholomeusz: "On the face of it, Chinalco is massively over-paying for the Rio interests it is proposing to buy. Why? Presumably because it sees strategic value beyond the straightforward economic value of the interests it would acquire.

The obvious explanation for a customer nation like China to want influence over one of the world’s most important resource companies would be to gain an influence over the pricing and supply of key commodities, but Rio swears blind Chinalco and its political masters will be kept at arm’s-length from the marketing of the commodities."

Developing... (as they say)