Ann: Hong Kong Dual Listing, page-117

Hi Bermuda - As Alanis Morisette sand isnt it ironic - Can Wayno suceed with a half a billion dollar market cap minnow where big Clive couldnt with $5b

Clive Palmer’s fight with China’s Citic could be his last



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After securing the deal of a lifetime with the Chinese government’s Citic Pacific, the partners are fighting in court royalty payments. Citic argues Palmer used $12 million of its money to fund his election campaign.

In a boardroom overlooking Hong Kong’s Victoria Harbour, Clive Palmer was in a frenetic rage. “You are an incompetent c---, a f---ing idiot,” the businessman yelled at one of the 10 investment bankers and lawyers seated around the table.

The tirade of expletives would continue for nearly two minutes, as the veins in Palmer’s neck bulged and he thumped the table. It only ended with his exit from the room, at which point it was agreed the issue should be set aside for another occasion.

“We were actually a bit worried about him, he was so worked up,” said one person present at the meeting.

It was July 2007 and Palmer was at the offices of investment bank UBS to begin the $5 billion float of his mining company, Resourcehouse. The planned listing in Hong Kong, for this assortment of undeveloped coal and iron assets, promised a big pay day for all involved, if glitches in the prospectus could be overcome. But it was not questions over the company’s aggressive valuation or even its lack of an operating track record which had Palmer in a rage that day.

It was his title. The businessman, who failed to complete his undergraduate degree, insisted on being referred to as Professor Clive Palmer in the prospectus – and was indignant that someone had dared to question him.

This is a consistent theme from those who have worked with the 60-year-old over the years, as he has morphed from Gold Coast real estate agent to mining entrepreneur.
It raises questions over the durability of his political career and ability to hold together his fledgling movement, the Palmer United Party.

His three PUP Senators, Jacqui Lambie, Glenn Lazarus and Dio Wang, who arrived in Canberra on Wednesday, insist they won’t be Palmer’s puppets. Ricky Muir from the Motoring Enthusiast Party, which has an informal alliance with PUP, has also pledged to be his own man.
But they all should remember one thing about Palmer. “He really hates being questioned,” said the source who asked not to be named. Such a loathing for ever being challenged almost derailed his Resourcehouse float at the first meeting. Palmer believed the Hong Kong Stock Exchange should just accept he was a real professor.

But its compliance department required documentary proof to support every claim made in his director’s biography. It was standard procedure, yet Palmer was furious that his adjunct professorship at Deakin University was being called into question. And he refused to give up. “He followed up with abusive emails and phone calls,” says the source. “But as far as we were concerned he would not be referred to as Professor Palmer in that prospectus.”

In the end Palmer’s title was largely irrelevant as investors, who were also yelled at for questioning Palmer’s assumptions, had no appetite for his float.

After a number of failed attempts to list, the deal was eventually aborted two years later. In the process, Palmer’s temper became legendary in Hong Kong. Such outbursts were usually triggered by anyone daring to challenge him, say two sources who worked on the deal.
“He could be very charming and friendly as long as you agreed with him,” said another person who advised on the Resourcehouse float.
TRANSLATING INTO POLITICS


For a private businessman such as Palmer, not answerable to shareholders, such direct challenges can often be avoided, but not in Parliament. This is especially the case when you’re leading a party with the power to influence major government decisions – the PUP has already killed off the carbon tax and Lambie has indicated she does not support the $7 GP co-payment.

That’s partly why retiring Nationals Senator Ron Boswell and many others doubt Palmer can hold together his disparate group of senators.“The question is whether those people will wake up,” Boswell said last week in reference to the three PUP senators.

If Palmer’s business career is any guide, they will “wake up” shortly and there will be a major falling out accompanied by furious name calling and threats. Fault lines have already appeared over carbon pricing.

But Boswell’s claim that his political rival is nothing more than a “gimmick” fails to recognise the particular skill set which has made Palmer a regular on the BRW Rich List since 2007. During his time as a real estate agent or mining entrepreneur, Palmer has shown a unique ability to be consistently ahead of others in identifying an opportunity. This is his great weapon and he put it to work at the last federal election.

The opportunity at that time was widespread disgruntlement with the major parties which allowed room for cashed-up populists like Palmer. This saw Palmer win the Queensland lower house seat of Fairfax and install three of his senators in the red chamber.

It was an unprecedented result for a new political party but not good enough to secure the balance of power in the Senate. So Palmer put his other great business skill into action – negotiating a deal. The target was Muir from the Motoring Enthusiast Party, and it took Palmer just two weeks to secure his support and the balance of power in the Senate if Labor and the Green vote against government legislation.

But if Palmer’s business career is any guide, this is the point where the problems begin. The initial deal appears the easy part for Palmer, but maintaining those initial agreements is a far more challenging proposition. During his two decades in and around corporate Australia, Palmer has twice negotiated spectacular initial deals only for them to end in anger and litigation.

The first was his plan to build a $5 billion steel mill on the old BHP site in Newcastle.
It was to be the single largest investment ever undertaken in NSW and was launched with great fanfare in 2001 with the state government’s full support. Four years later that deal collapsed in acrimony.

Depending on who you believe, it was either the government’s fault for failing to secure a suitable site or Palmer’s inability to raise finance which led to the failure.
Either way, Palmer was not shy about apportioning blame. “Governments in Australia are hopeless,” he said at the time. “Our bureaucracy is the worst in the world.”

Those involved from the NSW side were equally dismissive of Palmer. “He’s a bully and an amateur,” said one senior government figure. “We were very glad to see the back of him.”
Aside from the name calling, it was Palmer’s tenacity in seeking compensation that became the defining feature of that deal. He eventually squeezed $10 million out of the state and went on to proclaim in his Who’s Who biography that litigation was his hobby. He deleted this hobby a few years later, but the litigation continues today.
This time, his adversary is the giant Chinese government-owned Citic Group.
SPECTACULAR DEAL DONE AWRY


Once again, Palmer was early in identifying an opportunity and negotiated a spectacular initial deal. Before most people realised the mining boom was real, Palmer was in Hong Kong touting his iron ore assets.

His timing could not have been better. China’s Communist rulers were fixated on resource security and had become paranoid that their country’s development would be crimped by the big three iron ore miners, Rio Tinto, BHP Billiton and Brazil’s Vale, which controlled supply of the key steel making commodity.

Beijing was determined to break this stranglehold and Palmer, with a reported 160 billion tonnes of low grade iron ore, would help them do this.China’s inexperience and desperation were reflected in the terms extracted by Palmer in March 2006. Not only was he paid $US415 million ($443 million) for giving Citic the right to mine 2 billion tonnes of iron ore in Western Australia’s north-west but he secured two separate royalty payments.

The first – known as Royalty A – entitles him to 30¢ for every tonne of ore dug up. At full production this is around $7 million each year. But the big money comes from Royalty B. This gives Palmer between 6 per cent and 10 per cent of all the iron ore sold by Citic from the Sino Iron project in the Pilbara and which at full production runs to more than $200 million a year.

It was the deal of a lifetime, which Palmer secured without having to contribute a dollar of his own money for development costs. Even more extraordinary was that Palmer retained ownership of the mining tenements.

Yet, in an all too familiar tale, once the initial euphoria faded the litigation began.
Palmer could not just accept the scale of his windfall and do everything within his power to make life easy for Citic. Instead, as costs blew out from an initial $US3.5 billion to more than $US11 billion, Palmer went back to court.

Notwithstanding the incompetence of Citic, which had rushed into the project and failed to do the most basic of due diligence, Palmer fought them at every turn.
The parties went to court over a technicality relating to the timing of royalty payments and operations at the iron ore port built by Citic. Now the partners are fighting in court over the Royalty B payment and allegations that Palmer used $12 million of Citic’s money to fund his election campaign – an allegation repeatedly denied by Palmer. And there has been no shortage of name calling.

Palmer has accused Citic of incompetence and even corruption and said its executives would get their “bottoms smacked” when they went back to Beijing.

It’s a typically high-risk approach from Palmer, even if his endgame is unclear. But it could have devastating consequences, as some analysts believe Citic will eventually tire of the fight and walk away from the project entirely. “I don’t think he will get much more money out of the mine now because they will have to stop production,” says Tim Murray, the managing partner at J Capital Research.

Murray believes the mine will never be profitable, even if all its debts are written off, leaving Citic with no choice but to shut it down. If that happens, Palmer’s $200 million in royalties are gone, along with his claim to being a billionaire – and most likely his ability to fund future election campaigns.

The unofficial line from Citic in Hong Kong is that Palmer has picked the wrong fight this time. “He’s taken on the Chinese government,” was the view from within Citic’s headquarters.
Whatever is meant by this, it suggests Palmer’s financial fate is now in the hands of a powerful enemy.

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