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Rio Tinto Shares Plunge after China Warning

By Elizabeth Judge
TimesOnline.co.uk
Wednesday, June 17, 2009

Rio Tinto's planned tie-up with BHP Billiton hit fresh trouble today when China indicated it would launch an anti-trust investigation into the miner’s joint venture and warned it could introduce new laws to ensure its own companies did not lose out.

In an aggressive threat state, officials in China, whose own hopes of a $19.5 billion tie-up with Rio were thwarted, said the planned deal with BHP Billiton had "an obvious colour of monopoly" and would have a detrimental impact on the Chinese steel industry.

Rio's shares were down 21.3 per cent at 2,226p following the warning though this was in part down to the launch of its $15.2 billion rights issue which it announced in tandem with the BHP deal.

Chen Yanhai, an official from the Ministry of Industry and Information Technology, said: "The joint venture is likely to have a big impact on the Chinese steel industry as China is the world's biggest iron ore importer. The deal should be subject to Chinese anti-monopoly law."

If the tie-up was found to be monopolist, he said, China could seek new policies and rules to ensure Chinese companies had a bigger say in iron ore price talks.

China would help domestic miners to improve their competitiveness and to reduce its reliance on iron ore imports, he said.

Earlier this month, Rio Tinto ripped-up an agreement to sell a stake in the company to Chinalco, China's state-owned metals group, in favour of a joint venture with BHP, its bitter rival.

The decision followed pressure from angry shareholders who were unhappy the miner had struck a deal to raise money from Chinalco without offering investors a chance to participate in a rights issue. There were also concerns that the deal would have given Chinalco, Rio's largest shareholder, too much influence over the company.

Japan has already warned Rio that it has "serious concerns" about anti-competitive issues surrounding the BHP deal.

Kazuhiko Takeshima, the chairman of Japan's Fair Trade Commission, said the watchdog was awaiting further details of the joint venture and that it would expect to work closely with his EU counterpart on a legal review of the deal if the situation called for one.

Responding to China's concerns Simon Crean, the Australian Trade Minister, insisted that Rio and BHP remained competitors. "I think it is important to understand the proposal that Rio and BHP have entered is to share facilities and to try and get efficiency and therefore costs down from those shared facilities.

"They will still operate as separate marketing arms. They will therefore be competitors and so there won't be any lessening of competition and this is a message that I've conveyed to the Chinese ambassador and I think that when the details of the proposal emerges there will be acceptance of that."

Rio's various deal-making has cost it dearly - with a bill of £800 million for the past 18 months.

The bill includes £261.4 million in currency hedging costs and fees for its rights issue, £119 million in a break-fee for reneging on its Chinalco deal and £190 million in advisory costs defending itself from last year's hostile bid from BHP.