China Fund Denies BHP Bid Plans

China's new sovereign wealth fund denied on Monday it may team up with local steel makers to bid $200 billion for Rio Tinto, blocking a rival offer by BHP Billiton.

Rio Tinto
Rio Tinto

The state-owned China Business newspaper earlier reported that China Investment Corp (CIC) and the country's biggest steel makers were planning to jointly set up a team to bid for Rio, citing an unidentified source, sending Rio shares up 8 percent in Australian trading.

But CIC denied the report. "Up to now, CIC and its affiliates have never taken part in any activities to bid for Rio Tinto," the fund said in a brief statement. "There's absolutely no such thing," a CIC official, who asked not to be named, told Reuters.

Speculation that rivals would attempt to outbid BHP's all-share proposal has been rife since Rio rejected the BHP offer, worth about $124 billion based on BHP's share price -- one of the biggest-ever takeover attempts.

CIC, established in September to manage $200 billion of China's $1.43 trillion in foreign exchange reserves, was planning to link up with steel makers including Baoshan Iron and Steel Co (Baosteel), the paper said.

"This would require a lot of cooperation, and so far there's no news in this regard," Luo Bingsheng, associate chairman of the China Iron and Steel Association, said on the sidelines of a conference in Beijing.

Rio Chief Executive Tom Albanese later outlined Rio's determination to remain independent, saying Rio planned to spend $2.4 billion on new mines, raise its dividend and generate billions of dollars from asset sales.

Rio's Australian stock closed up 7.5 percent at A$138. BHP shares gained 4.6.

Baosteel and other Chinese steelmakers, along with other Asian steelmakers, have told BHP Chief Executive Marius Kloppers they are worried that a combination of BHP and Rio would have too much power in setting the price of iron ore, the main feedstock for steel.

China already takes half of all the ore that BHP mines. BHP, Rio and Brazil's CVRD control about 70 percent of the iron ore that China buys.

UBS has said BHP could afford to put a further $27 billion in cash into the offer on top of a promised $30 billion share buyback.

A Reuters poll on Friday showed BHP is expected to raise its offer by about a fifth, possibly by adding some cash to win over Rio shareholders.

BHP made public its plan on Nov. 8 to forge a mega-mining group with a market capitalisation of around $350 billion, but Rio quickly spurned the proposal, saying it undervalued the company.

Since BHP made its intentions known, there has been speculation that Anglo American, CVRD, and Xstrata might step forward with rival offers.

There were also suggestions in the media that Rio might turn the tables and bid for BHP.