DealZone

Friend ore foe

February 13, 2009

RIOTINTO/This one was coming forever. China’s ambition to claim a place on the global financial stage commensurate with its swelling population and heaving ownership of U.S. debt was as inevitable as the end of the cheap-credit boom years. More importantly, the nearly $20 billion investment by Chinalco, China’s top state-owned aluminum producer, in miner Rio Tinto serves the country’s domestic needs, guaranteeing supplies of raw materials to the struggling Chinese factories that sell around the world.

As Lucy Hornsby writes, roadwork for the long march of Chinese industry abroad is being done by its banks, which analysts tell her are “most likely to buy minority stakes in foreign counterparts … as Western peers bleed red from the global financial crisis.” She cites Industrial and Commercial Bank of China’s 2007 acquisition of a stake in South Africa’s Standard Bank, with its clear implications for funding China’s interest in the resource sector.

Chinalco’s chief says he has no plans to raise his stake in Rio. Right now, the investment is in convertible bonds, so taking more control is a matter of financial maneuvering. And there really is no need. China’s emergence in global business is still a story of raising its game, learning the rules and gaining the skills to make successful businesses.

Given the limited exposure and developmental difficulties foreigners have traditionally had investing in China, it’s easy to cast the Chinalco/Rio deal in a negative light, forgetting for a moment that the collapse in commodities prices has made Rio hungry for capital. But if China doesn’t further invest in the world, then the billions of dollars it takes in every year by selling cheap stuff will continue to exacerbate imbalances in the global economy.

Other Deals News:

* With only days to go until a critical deadline, Sirius XM Radio Inc is still in talks with potential investor Liberty Media Corp, a person familiar with the matter said.

* Shares in small Thai lender ACL Bank surged as much as 18 percent on Friday on speculation that it might be a target of Bank of Ayudhya (BAY), which wants to acquire retail banking businesses.

* Lloyds of London insurer Beazley Group announced plans to raise 150 million pounds ($213 million) to exploit growth opportunities and fund the $35 million acquisition of U.S. underwriting firm First State.

* Indian liquor maker United Spirits said on Friday it was prepared to offer a stake of more than 15 percent and board representation to Diageo Plc to ensure a successful conclusion to talks that began last year.

(PHOTO: Rio Tinto Chief Executive Tom Albanese (R) smiles as Chinalco President Xiao Yaqing (L) shakes hands with Chairman of Rio Tinto Paul Skinner during a meeting in London February 12, 2009. REUTERS/Stephen Hird)

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