Chinese steelmaker Shougang has halted its bid for a stake in iron ore developer Mount Gibson after the Takeovers Panel put the kybosh on a share transaction on Monday which effectively stopped the deal in its tracks.
However, the decision isn’t thought to be aimed at Chinese companies: a sensitive point given the strained relations over the BHP-Billiton-Rio Tinto merger, iron ore supplies and pricing and the opposition to the merger from the Chinese Government and industry.
It is also thought not to be a precedent in the attempt by Sinosteel to takeover Midwest Corporation, although any break of the Takeovers Code would be treated in a similar fashion.
The state-backed Sinosteel Corp is pursuing a hostile $1.2 billion takeover bid for iron ore miner Midwest, the first such offer by a Chinese company for an Australian one.
Russia’s Gazmetal Holding (Cyprus) Ltd agreed in January to sell Shougang a 9.3% stake in Mount Gibson, with an option for another 10% stake.
The Takeovers Panel ruled Monday that Shougang’s purchase of a 19.73% stake would give it too much control over Mount Gibson due to the Chinese company’s 18% in Hong Kong-based APAC Resources Ltd, which has 20.2% of in Mount Gibson. Shougang Hong Kong has the stake in APAC.
Shougang’s publicly listed unit Shougang Concord International Enterprises Co said Wednesday in an announcement on the website of the Hong Kong Stock Exchange that in view of that ruling, "all rights and obligations of the parties under the share purchase agreement … are terminated,"
That was 24 hours after a spokesman for APAC said publicly the company did not agree with the decision.
The Takeovers Panel ruled that Shougang Concord was “associated” with another Chinese entity that is already a prominent shareholder (APAC) in the iron ore group.
Both Shougang Concord and Shougang Hong Kong are subsidiaries of Shougang Corporation, a state-owned steelmaker controlled by Beijing.
The Panel’s “declaration of unacceptable circumstances” was based on its belief that Shougang Concord’s planned purchase breached Australian takeover laws, which requires a bid once an investor owns more than 19.9% of a target’s shares, and was also contrary to the general principles laid down by the country’s Corporations Act.
Mount Gibson had complained to the Panel that the two Chinese investors were associated companies that together had interests in close to 40% of its shares.
APAC has been able to increase its stake slightly beyond 20 per cent under so-called ”creep” provisions which allow a maximum of 3% increase every six months.
Mount Gibson said it was pleased its “serious concerns” had been addressed by the Panel’s finding of unacceptable circumstances.
“Mount Gibson is considering the full effect of the Takeovers Panel’s orders and will keep the market informed of any material developments.”
Mount Gibson operates the Tallering Peak mine 175 kilometres east of Geraldton and the Koolan Island mine off the Kimberley coast in Western Australia.
It is forecast to produce 6 million tonnes of iron ore this year, rising 25% by 2010.
Mount Gibson shares rose 10 cents to $2.93 yesterday.
