FinanceFaltering deal takes shine off China - COMMENT...

Finance
Faltering deal takes shine off China - COMMENT -
SARAH-JANE TASKER
896 words
8 April 2013
The Australian
AUSTLN
1 - All-round Country
17
English
© 2013 News Limited. All rights reserved.

WHILE business leaders are justifiably making the case at the Boao forum that the Australian government needs to ensure it rolls out the welcome mat for Chinese investment, the disastrous Hanlong takeover of Sundance Resources is a stark reminder that Australian companies need to be careful what they wish for.

The deal, which was launched in July 2011, has been filled with high drama since it was lobbed a year after Sundance almost went under when its entire board was killed in a plane crash in the Congo.

The team was visiting the $5 billion Mbalam iron ore project bordering Cameroon and Congo.

Hanlong has battled insider trading charges, and more recently a detained chairman, and has obviously fallen out of favour with China's top decision-makers as it has struggled at every hurdle to secure funding from state-owned banks to complete the deal.

From the outset the market was wary of the deal but the board has fought hard to keep it going this long, knowing a full takeover was its best option to realise value for its patient shareholders.

Australia's business leaders may be warning the country is at risk of losing investment from the economic powerhouse but talk to some of the insiders of this troubled deal and the Chinese are not depicted, in this case, as a stable and secure partner to get into bed with.

It is worth noting too that 380 Chinese investment applications have been approved by the Foreign Investment Review Board, with only six having conditions imposed that forced the bids to be altered.

For Australian companies looking to venture into China, the difficulties are legendary but China has also made some colossal mistakes when venturing into Australia's resources space.

You need to look no further than Citic Pacific's Sino Iron project in Western Australia and its high-profile stoush with the colourful Clive Palmer to see how wrong it can get it.

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The Sundance board had just about everything thrown at it by the Chinese during some ruthless negotiations that saw China significantly cut the offer price, because by the time Hanlong got around to negotiating funding for the takeover the iron ore market had started to lose its lustre.

The price was initially bid at 50c a share but the Sundance board rejected that as too low and got it bumped up to 57c, an offer it felt it could back.

But when China's top economic planner, the National Development and Reform Commission, entered the deal talks in the second half of last year, it only provisionally approved it on the condition the bid price was reviewed.

The parties then agreed to cut the price to 45c.

The share price of Sundance has suffered as the deal has taken so long to complete. The market has become increasingly sceptical about it being finalised and its shares are now frozen at 21c.

It is likely another Chinese party will step in and deal with Sundance once the Hanlong deal is officially dead but Hanlong's handling of the takeover process has left the target in a tougher negotiating position if and when it launches fresh talks with the Chinese.

Sundance's shareholders will be hoping that if another deal with a Chinese suitor goes ahead, lessons are learnt and things run smoother than the disastrous Hanlong deal.

Surely, the junior's board is going to lock in a ``watertight'' contract that can't be repeatedly altered this time.

But contracts still require trust and that has been in short order in this sorry saga.

A SORRY SAGA

Jul 18, 2011: Hanlong launches a 50c-a-share bid for Sundance.

Sep 13, 2011: ASIC reveals it is investigating three Hanlong executives for insider trading in Sundance and Bannerman.

Oct 4, 2011: The Sundance board backs an improved, 57c-a-share offer from Hanlong.

Nov 27, 2011: Hanlong fails to secure supporting documents from its financiers, which are needed before a binding letter of credit.

Apr 27, 2012: Sundance reaches agreement with the government of Cameroon on key terms underpinning a pact for developing its Mbalam iron ore project.

May 24, 2012: Sundance and Hanlong sign a revised agreement, pushing out the timeline of the deal.

Aug 1, 2012: Sundance announces it is reviewing a reduced takeover offer from Hanlong after the NDRC gave the deal provisional approval on condition the offer price was lowered.

Aug 27, 2012: Sundance supports a revised 45c-a-share offer.

Oct 18, 2012: Hanlong's banks produce letters of support for the deal.

Dec 3, 2012: Hanlong misses another deadline, failing to secure the terms of bank credit.

Dec 5, 2012: Sundance again extends the end date for the deal, from January 11 to February 22.

Jan 29, 2013: Hanlong misses the revised deadline to produce a credit-approved term sheet from its financier.

Mar 20, 2013: News breaks that Hanlong chairman Liu Han has been detained by Chinese police.

Mar 25, 2013: Hanlong again misses deadline to produce a credit-approved term sheet from its banks, triggering a consultation period that allows either party to terminate the deal.

Apr 3, 2013: Hanlong fails to inject a further $5 million cash into Sundance yesterday, as per its agreement