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Thursday 24 September 2009
China takes Rio lessons to heart
On Monday, commodity trader Noble Group said it is selling 15 per cent of its shares to China Investment Corp (CIC) for US$850 million, marking the sovereign wealth fund’s latest foray into the resources sector.
On Monday, commodity trader Noble Group said it is selling 15 per cent of its shares to China Investment Corp (CIC) for US$850 million, marking the sovereign wealth fund’s latest foray into the resources sector.
But to market watchers and followers of China’s economic ascent, the news is significant not just because of the massive amount of money involved, but its parallel with Chinalco’s offer of US$19.5 billion for a strategic stake in Australia’s Rio Tinto.
To recap: China state-owned aluminium giant Chinalco and US-based peer Alcoa teamed up last year to buy some 9 per cent of Rio Tinto for about US$14 billion, with a view to amassing up to 14.9 per cent of the mining giant.
At that time, most observers saw it as Beijing’s attempt to protect the mainland’s supply of ores, while there were unconfirmed reports that CIC assembled a US$120 billion war chest for Chinalco to use in blocking any BHP Billiton bid for Rio.
The difference was that, in that case, Chinalco found itself the target of shareholder and political attack Down Under, resulting in Rio walking away from a second offer later that would have given China direct stakes in some mining assets.
If there is a lesson which Beijing learnt from the Rio episode, it is to conceal its investments from public scrutiny by buying up third-party firms with access to those key resources.
If that is true, then buying a stake in Noble makes sense since it recently mounted a successful takeover of Australia’s Gloucester Coal, which produces power station coal and coking coal used by steelmakers,
Not only that, but Noble has farm production in Argentina, Uruguay and Brazil, five owned port facilities throughout South America and soybean-crushing plants in China.
As a Hong Kong-based company, the management is not likely to be hostile towards any investment from a China state-controlled fund.
Besides its stake in Noble, CIC also owns 17.223 per cent in Canada’s Teck Resources; a stake in Canary Wharf in London; and is reportedly in talks with property investors in the US, such as Blackstone, regarding possible investments.
Furthermore, Chinese investment in natural resources and power is being driven in part by the fundamental needs of the Chinese economy, which continues to grow at a rapid pace.
Seen in that context, the latest move represents Beijing’s attempt to secure a firm supply of agricultural products after the food crisis seen last year, where prices of rice, wheat and soybean soared to multi-year highs.
Not surprisingly, CIC and Noble agreed ‘to enter into this partnership for the purpose of jointly investing in infrastructure assets and supply chain management related to agricultural commodities’.
Plus, Noble has a sizeable commodities-trading operation in energy, which includes fuel oil, coal and ethanol, and the company has its own port facilities throughout South America.
Its portfolio includes the metals, minerals and ores segment as well - resources that are needed for China’s industrialisation.
On Noble’s part, the share exercise will raise some US$642.2 million in additional capital, at a time when credit is scarce.
The capital injection certainly provides Noble with the resources to pursue strategic investments in key agricultural markets globally.
Besides that, Noble can ride on CIC’s extensive network and political influence to back any business expansion in China, presently the sole engine of growth in the world.
Seen in that light, CIC’s stake in Noble is not only a strategic move in China’s economic game plan, but certainly one which Noble’s shareholders stand to profit from as well.
1 comment:
China takes Rio lessons to heart
By OH BOON PING
24 September 2009
On Monday, commodity trader Noble Group said it is selling 15 per cent of its shares to China Investment Corp (CIC) for US$850 million, marking the sovereign wealth fund’s latest foray into the resources sector.
But to market watchers and followers of China’s economic ascent, the news is significant not just because of the massive amount of money involved, but its parallel with Chinalco’s offer of US$19.5 billion for a strategic stake in Australia’s Rio Tinto.
To recap: China state-owned aluminium giant Chinalco and US-based peer Alcoa teamed up last year to buy some 9 per cent of Rio Tinto for about US$14 billion, with a view to amassing up to 14.9 per cent of the mining giant.
At that time, most observers saw it as Beijing’s attempt to protect the mainland’s supply of ores, while there were unconfirmed reports that CIC assembled a US$120 billion war chest for Chinalco to use in blocking any BHP Billiton bid for Rio.
The difference was that, in that case, Chinalco found itself the target of shareholder and political attack Down Under, resulting in Rio walking away from a second offer later that would have given China direct stakes in some mining assets.
If there is a lesson which Beijing learnt from the Rio episode, it is to conceal its investments from public scrutiny by buying up third-party firms with access to those key resources.
If that is true, then buying a stake in Noble makes sense since it recently mounted a successful takeover of Australia’s Gloucester Coal, which produces power station coal and coking coal used by steelmakers,
Not only that, but Noble has farm production in Argentina, Uruguay and Brazil, five owned port facilities throughout South America and soybean-crushing plants in China.
As a Hong Kong-based company, the management is not likely to be hostile towards any investment from a China state-controlled fund.
Besides its stake in Noble, CIC also owns 17.223 per cent in Canada’s Teck Resources; a stake in Canary Wharf in London; and is reportedly in talks with property investors in the US, such as Blackstone, regarding possible investments.
Furthermore, Chinese investment in natural resources and power is being driven in part by the fundamental needs of the Chinese economy, which continues to grow at a rapid pace.
Seen in that context, the latest move represents Beijing’s attempt to secure a firm supply of agricultural products after the food crisis seen last year, where prices of rice, wheat and soybean soared to multi-year highs.
Not surprisingly, CIC and Noble agreed ‘to enter into this partnership for the purpose of jointly investing in infrastructure assets and supply chain management related to agricultural commodities’.
Plus, Noble has a sizeable commodities-trading operation in energy, which includes fuel oil, coal and ethanol, and the company has its own port facilities throughout South America.
Its portfolio includes the metals, minerals and ores segment as well - resources that are needed for China’s industrialisation.
On Noble’s part, the share exercise will raise some US$642.2 million in additional capital, at a time when credit is scarce.
The capital injection certainly provides Noble with the resources to pursue strategic investments in key agricultural markets globally.
Besides that, Noble can ride on CIC’s extensive network and political influence to back any business expansion in China, presently the sole engine of growth in the world.
Seen in that light, CIC’s stake in Noble is not only a strategic move in China’s economic game plan, but certainly one which Noble’s shareholders stand to profit from as well.
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