China bank builds stake in Rio Tinto

An arm of the Chinese state has taken a secret stake in Rio Tinto, the mining giant that last week received an approach from rival BHP Billiton.

The stake is understood to have been bought in the past week by China Development Bank (CDB), which is backed by the Communist government in Beijing.

Although the stake is small - it is believed to be less than 1 per cent - the emergence of CDB on the shareholder register of Rio is hugely significant. It is the first time a Chinese state-backed group has taken a direct stake in a global miner and will fuel speculation that China may intervene in the bid battle.

Tom Albanese, the chief executive of Rio, was travelling in China last week but the trip had been arranged before the company was approached by BHP.

The world's largest miner confirmed on Thursday that it had made an unsolicited approach to Rio to form a $350bn (£175bn) mining behemoth that would _control almost 40 per cent of the world's iron-ore production.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/11/cnrio111.xml

One more reason to be in invested into commodity stocks...

 

The behaviour of some of the investment banks around BHP’s attempted £67bn ($140bn) takeover of Rio Tinto has left a bad taste in some boardrooms.

Several banks seem so keen to get a role in the proposed deal that they are prepared to risk upsetting long-standing clients in the mining sector.

Anglo American is understood to be irritated that Goldman Sachs has chosen to work for BHP. Goldman has worked for Anglo for years and is listed as the mining group’s corporate broker alongside UBS. The pair are in the process of selling Tarmac, Anglo’s £6bn UK-based building materials business. They also helped Anglo with a $1bn share offering last year that reduced its holding in AngloGold Ashanti, as well as handling share buy-backs for the group.

Citigroup has also jumped on to BHP’s team, but the bank has spent years working for Alcoa, the US mining group and Alain Belda, Alcoa’s chairman and chief executive, is also a director of Citi.

Meanwhile, those firms not engaged have been fervently calling Rio to peddle their services. The Anglo-Australian group should take up the offers and tie up as many banks as possible to prevent them from acting for BHP. More shrewdly, it should make sure there are hardly any banks left to provide the debt or equity needed to refinance Rio’s existing debt, already no easy task in this uncertain credit crunch.

Citi is set to provide billions of dollars in financing to BHP, and HSBC has been brought on board to do the same. It is, after all, hard to believe that BHP has hand-picked HSBC for anything but its balance sheet, given the bank is not a high-calibre M&A adviser.

From the point of view of Goldman and Citi, it all feels a bit childish. Both banks lost out on fees and league table credit last year after advising and financing Alcoa on its hostile bid for Alcan only to be trumped by Rio Tinto.

There is such little differentiation between the world’s investment banks and their ability to finance and execute deals these days that the long-term relationship is surely one of the last ways for them to prove their value.

 

For the umpteenth time, when foreign investors buy foreign stocks, be careful. Were the Chinese trading on inside information?