why such a sell off?, page-15

Not good.

Valin Steel Has Fortescue Debt Concerns; in Talks (Update2)
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By Xiao Yu and Helen Yuan

Feb. 19 (Bloomberg) -- China’s Hunan Valin Iron & Steel Group, in talks to invest in Fortescue Metals Group Ltd., has concerns over the debt level of Australia’s third-largest iron ore producer.

“We haven’t hired a banker on this because the talks are still in a very initial stage,” Valin’s general manager Li Jianguo said today in an interview in Beijing. “We do have concerns that they have rather high debt levels and the financial risks are quite big.”

Fortescue, which sold shares in December to pay bills, wants to boost exports after delaying expansion last year amid frozen credit markets and a demand slump. China, the world’s biggest metal consumer, agreed this month to invest $21.2 billion in debt-laden mining companies Rio Tinto Group and OZ Minerals Ltd.

“The steelmakers should be prudent in making decisions,” said Zhou Xizeng, a Beijing-based analyst with Citic Securities Co. “The strategy is clear and right for China to buy mining assets overseas because the prices may be near the bottom.”

Fortescue’s shares pared gains by over 6 percent in Sydney trading after Valin, China’s ninth-largest steelmaker, said it has concerns over debt. The stock rose 1 percent to A$3.02 at 2:20 p.m. Sydney time. It was at A$3.22 before Li’s comments.

The Australian Financial Review today said Valin, backed by China’s $200 billion sovereign wealth fund, may invest A$3 billion in Fortescue. Fortescue spokesman Cameron Morse declined to comment. Valin’s Li didn’t give other details.

The Perth-based company yesterday said it held investment talks with China Investment Corp., the nation’s sovereign wealth fund, and Anglo American Plc. Valin is based in Hunan province.

To contact the reporters on this story: Yu Xiao in Beijing at [email protected]; To contact the reporters for this story: Helen Yuan in Shanghai at [email protected].

Last Updated: February 18, 2009 23:22 EST