http://business.theage.com.au/business/china-puts-brakes-on-hunan-bid-20090414-a6b5.html
China puts brakes on Hunan bid
John Garnaut, Beijing
April 15, 2009
CHINA'S top economic planning agency has surprised Hunan Valin Steel by withholding approval on its bid for 17 per cent of Fortescue, amid concerns the Australian Government has imposed overly onerous conditions.
Australia's Foreign Investment Review Board imposed a number of conditions aimed at ensuring directors appointed by Hunan Valin to the Fortescue board do not use pricing information against the Australian company in iron ore contract negotiations.
Officials at the National Development and Reform Commission are worried the FIRB set an unfavourable precedent that may fetter other Chinese investments, particularly Chinalco's bid to gain 18 per cent of Rio Tinto, according to Chinese media reports and close observers in Beijing.
Fortescue Metals is now unlikely to ink the Hunan Valin deal at this weekend's Bo'ao economic forum, as was previously hoped.
Chinese industry sources say the NDRC's foot-dragging illustrates mounting Chinese concerns about the investment climate in Australia.
Chinese officials are also watching closely continuing court proceedings between Fortescue, Andrew Forrest and the Australian Securities and Investments Commission, according to a source close to Valin.
But most observers say the NDRC is unlikely to derail the deal. "What makes NDRC unhappy is that the Australian Government has imposed supplementary conditions," a well-connected industry reporter said.
"They have asked Valin to communicate with Australia, saying that such additional conditions should not harm the rights of Chinese companies investing in Australia, such as Chinalco," the source said.
A Fortescue spokesman said he expected NDRC to provide its approval, as the FIRB conditions are consistent with conflict-of-interest provisions already contained in the investment agreement between the two parties.
Valin, unlike other Chinese investors in Australia such as Chinalco, Minmetals and Sinosteel, is a provincial company that carries little weight in Beijing.
But Valin boss Li Xiaowei has received strong backing and financial assistance from his ultimate shareholder, Hunan provincial governor Zhou Qiang.
"Zhou Qiang is close to NDRC and has played a major role in pushing the deal," said an industry insider.
"That's why Valin were given the chance to invest in FMG. But if NDRC do deny the deal, that will be far more than interesting," she said.
"Fortescue Metals is not aware of any reasons why Hunan Valin's shareholding and investment in Fortescue will not be approved by the NDRC," a Fortescue Metals spokesman said.
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