It isn’t surprising that China’s first successful hostile takeover bid for an overseas company concerns commodities. Neither is it surprising that Sinosteel, the country’s second-largest importer of iron ore, is involved.
China’s voracious appetite for iron ore and the M&A ambitions this has nurtured among steelmakers keen to secure supplies in a climate of rising commodity prices was the subject of a report in the July issue of China Economic Review. The people we spoke to for the report – all of whom are directly involved in the industry or advise on deals relating to it – agreed that Sinosteel was one of, if not the, most aggressive Chinese player.
Chinese interest in Australia’s high-quality iron ore hit the headlines in February with Chinalco’s investment in Rio Tinto. Buying into one of the big three global mining firms was audacious. But Chinalco’s approach – bringing American steelmaker Alcoa on board as if to stress that this was a commercial rather than a state-driven transaction – displayed a deal-making savvy that had been notably absent in previous attempts by Chinese firms to participate in high-profile overseas investments.
Sinosteel’s aggressive takeover of Midwest has taken things to a new level – and it probably won’t be the last such deal.
“Working on China-related deals two or three years ago, I once gave a presentation to an interest group in which I said Chinese investors did not yet have the appetite for hostile takeovers,” a Chinese lawyer working for an international law firm told China Economic Review. “But I am sure we will see a lot of more of these over the coming months and years. Chinese investors are increasingly sophisticated.”
The lawyer said he was currently working on two commodities-related investments by Chinese firms in Australia. He added that one of these deals could well end with an aggressive takeover bid.
The million-dollar question is: Will Australia reach a point at which it becomes uncomfortable with the level of Chinese investment?
Chinese steelmaker Shougang found itself on the wrong side of the regulator when one of its subsidiaries tried to buy a stake in Mount Gibson Iron. There were concerns that, should the deal go through, Shougang would hold too much sway over Mount Gibson because the Chinese firm held a significant stake in a company that was already a Mount Gibson shareholder. More recently, Shougang’s bid for a stake in Australian iron-ore miner Property Resources was also rejected.
However, the Australian government has gone to great lengths to say that the country still welcomes Chinese investment. According to Finance Minister Lindsay Tanner, Australia’s assessment of foreign bids is “agnostic” when it comes to the nationality of investors.
It remains to be seen whether or not public opinion – and, as a result, political sentiment – can hold firm to these principles.