counting down

Article from today's Business Day by Jamie Freed

http://www.businessday.com.au/business/defence-blocks-chinese-bid-20090922-g0kp.html

COUNTING DOWN

If the Chinese want a discount on Fortescue Metals's iron ore, they better act fast. Or at least, that is what Fortescue would have the market believe, since its agreement to sell its iron ore for 3 per cent less than its rivals is supposedly contingent on completing a $US6 billion ($6.85 billion) debt financing package by next Wednesday.

Fortescue is being advised by Grant Samuel on this deal. The lead banker, John Morrison, goes way back with the Fortescue boss, Andrew Forrest, having been appointed as a director of Anaconda Nickel in 1999 - coincidentally, on the same day as Rodney Adler. The Chinese side is being advised by Deutsche Bank.

Forrest has publicly denied Fortescue will use the funds to buy back its existing junk bonds. However, it is understood it has long had a detailed plan in place to buy out the bondholders due to the restrictive covenants. It missed out on a great opportunity earlier this year when the bonds were trading at about 50c on the dollar, versus above face value now.

The most interesting detail of the mooted Chinese funding package will be whether the banks obtain security over the Fortescue assets.

A report from a Senate inquiry last week confirmed the Foreign Investment Review Board is looking at potential legislative fixes to ensure foreign companies do not obtain effective control of a company via loopholes without the need for permission. For example, under new FIRB guidelines expanding the allowable thresholds for investments, Noble Group, which controls Gloucester Coal and other assets, will not have to seek permission for investments worth less than $209 million because its new investor, the China Investment Corp, will own only 14.5 per cent of Noble after making a $US850 million investment.

But contrary to a broker report circulated in the market yesterday, any company with 15 per cent or more of its shares owned by a government or sovereign wealth fund will need to obtain FIRB's permission before buying a single share of an Australian company.