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Shadow falls on deals with China

PUBLISHED: 8 HOURS 8 MINUTES AGO | UPDATE: 8 HOURS 8 MINUTES AGO
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Being told there are plenty more fish in the sea is enough to make the hearts of the heartbroken sink even lower. So too with investors: Sundance Resources’ bright chatter about entertaining new suitors failed to stop its shares halving in value after the Australian iron ore miner decided not to wait any longer for China’s Hanlong Mining. Sundance is a junior miner but this saga’s significance lies in what it says about Chinese dealmaking.

Sundance was clearly committed, clinging on more than 21 months since a tie-up was first mooted publicly. Investors have, during that time, sat tight through various agreements conditional on Beijing’s nod, a forced renegotiation at the behest of China that dropped the price by a fifth, and several missed deadlines to produce bank guarantees that Hanlong was good for the money.

The detention last month in China of Liu Han, Hanlong’s founder, and an insider trading scandal involving Hanlong’s top Australian executives made this deal a little more dramatic but the central fact remains: Chinese dealmaking is tortuous. It is not only Australia, either: Sinopec and ENN’s bid for China Gas limped on in Hong Kong for more than eight months without gaining Beijing’s backing, on which the whole thing hinged. And Glencore and Xstrata still need a nod for their mega-deal.

Sundance still needs the financing it had hoped Hanlong would commit. At least it still has the chief asset that attracted interest: the Mbalam iron ore project on the Cameroon-Congo border. Confidence in another bid is probably not misplaced. But investors’ extreme reaction to the scuppering of the Hanlong deal suggests they fear it could be equally tortuous.

China’s President Xi Jinping this week promised foreign business leaders he would protect their interests in China. To reform dealmaking norms would be a start.