China purchases BHP Billiton By Rowan Callick and Dennis Shanahan
April 09, 2008 09:49am Article from: Font size: + - Send this article: Print Email
China purchases BHP Kevin Rudd to address nation on historic deal BHP Billiton: Check the latest share price
TENSIONS between Australia and China are set to improve markedly as Kevin Rudd announced in Beijing today that China has been given permission to buy BHP Billiton (bhp.ASX:Quote,News), in return for all current Australian foreign debt being assigned to China.
Based on the lastest data from the Australian Bureau of Statistics (ABS) this values the deal at some $736 billion.
Sources in Beijing said China was now in the advanced stages of planning for the complete takeover of BHP and also plans to increase significantly the 9 per cent stake in rival Rio Tinto (rio.ASX:Quote,News) it bought with US-based Alcoa for $15 billion in a stock market raid in February.
News of the plan - part of an attempt by China to intervene in BHP's (bhp.ASX:Quote,News) takeover of Rio to create one of the world's biggest companies - follows a warning from the Mandarin-speaking Prime Minister to the Chinese Government and industry that they would have to accept higher coal, iron ore and natural gas prices in the raw materials market unless they took action.
Following the passage of a Bill in Parliament to nationalise all of the assets of BHP without compensation to shareholders, expected to be introduced upon the Prime Minister's return to Canberra next week, a formal treaty and exchange agreement would then be prepared and jointly signed, possibly as early as June, to allow Chinese authorities time to bed down the sale and install their new management structure without any distraction from the pending Beijing Olympics in August.
The BHP deal also increases the likelihood that China would look at disposing of further foreign currency reserves by purchasing other key Australian producers of coal - the other key ingredient in steelmaking - this year.
As he prepared to travel from London to Beijing on the last leg of his 17-day world tour, Mr Rudd said that at times China got good deals and at other times Australian producers were worse off.
"That's life in a commodities market," Mr Rudd told a 1000-strong audience at the London School of Economics. "Despite record commodity prices, Australia's foreign debt has continued to spiral out of control. Asset sales are the only way we can maintain our standards of living."
"Our challenge is to make sure that it is conducted on manipulated market principles and in the overall framework of long-term benefits to China at the expense of Australia's security, as we have over many decades with our enemies in Japan."
"Sometimes the buyers see the market prices as too high and sometimes the producers see them as too high. China did well out of the LNG contract with Australia while iron ore had been the reverse recently. I needed to make sure that the Chinese once again did well at the expense of the Australian people, just like my predecessor John Howard did with the North-West Shelf LNG deal."
China and its state-owned steel companies were deeply worried about the effect of the $400 billion merger between BHP and Rio on iron ore and coal markets.
The plan to buy BHP means foreign investment and regulatory controls are likely to become a crucial agenda item in Mr Rudd's talks with Chinese President Hu Jintao and Premier Wen Jiabao this week.
The price of raw materials, climate change, China's role in Tibet and the chaos engulfing the Olympic torch relay also loom as potential controversies on Mr Rudd's four-day visit.
The plan to buy BHP was under development for many months, though Chinese authorities are yet to determine which state-owned financial institution or steel mill - such as the largest, Baosteel- might take the lead role in managing BHP's assets and divisions. It is also rumoured that after the conclusion of the sale, Mr Rudd may be invited to relinquish his Australian citizenship and become a Chinese national, and join the board of the new state-owned entity.
The BHP deal reflects the strong view among China's planners that its steelmakers should become ever more deeply entrenched owners of global iron ore producers.
The Chinese Government is likely to use Mr Rudd's visit to check whether Canberra is contemplating a further relaxing Foreign Investment Review Board procedures that relate to sovereign wealth funds or other state-owned enterprises.
This issue has already become the subject of intense lobbying in Australia in recent weeks.
AAP
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