BEIJING - Rio Tinto (RIO.AX) and BHP Billiton's (BLT.L) proposed iron-ore joint venture has a strong monopolistic flavour and Chinese firms are actively seeking ways to cope with it, state media on Wednesday cited a senior official as saying.
China is the world's largest importer of iron ore and BHP-Rio together would account for 80 percent of Australia's exports of the ore, the Ministry of Commerce spokesman said this week, adding that China's worries about the deal were understandable.
The potential deal has an obvious colour of monopoly. 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, said Chen Yanhai, an official from the Ministry of Industry and Information Technology (MIIT), according to CCTV.
The deal should be subject to Chinese anti-monopoly law, Chen, the head of the raw material department of MIIT, added.
Rio Tinto scrapped a proposed $19.5 billion (12 billion pounds) tie-up with Chinese metals group Chinalco two weeks ago and instead raised $21 billion through a $15.2 billion rights issue and the iron ore joint venture with BHP.
According to China's anti-monopoly law, all business combinations must be cleared by the ministry if the joint global revenue of the companies involved exceeds 10 billion yuan (900 million pounds) or 2 billion yuan in China.
But a review would not be needed unless two or more of the firms each had more than 400 million yuan of revenue in China during the previous accounting year.
In the year ended June 30, BHP Billiton's revenue in China was $11.7 billion while Rio Tinto's was $10.8 billion, according to the companies' websites.
BHP and Rio would be discussing the potential regulatory issues with Chinese officials, BHP spokesman Ruban Yogarajah said.
We'll be engaging with them as with other regulators around the world and we'll do whatever is legally required.
Chen also said that if the tie-up was found to be monopolistic, China might have to seek new policies and regulations to enable Chinese companies to have a bigger say in iron ore price talks, according to CCTV.
China would help domestic miners to improve their competitiveness and to reduce its reliance on iron ore imports, Chen said.
Responding to China's concerns, Australian Trade Minister Simon Crean told reporters in Canberra: I think it's important to understand that 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.
Crean said the fallout between Chinalco and Rio had been an eye-opener for the Chinese and their state-owned enterprises to understand that acquisition deals also involved shareholders.
I actually think it's going to be an important learning curve for China. The Chinese business community, state-owned enterprise or otherwise, needs to understand the important role that shareholders play in these sorts of plays, he said.
Commenting on Chinese steel firms' talks with global iron ore majors, MIIT's Chen said China's claim for a bigger price cut was justified as they have had to make sacrifices in the past due to soaring prices.
Against the backdrop of the financial crisis, our demand for an iron ore price cut is reasonable and does no harm to the interests of our suppliers, CCTV quoted Chen as saying.
China, the world's largest steel producer, has been holding out for a minimum 40-45 percent cut after Japanese and Korean firms accepted 33 percent, and toughened its position last week by threatening to walk away from talks and reduce steel output.
The joint venture is likely to go ahead in the second quarter of next year, the premier of Western Australia, where BHP and Rio's Pilbara iron ore operations are located, said on Wednesday, following a briefing by BHP Chief Executive Marius Kloppers.
This is extraordinarily complicated, state premier Colin Barnett told reporters, according to Australian Associated Press.
However I believe they will probably proceed and achieve this production joint venture.
Barnett is pressing the companies to revise decades-old royalty agreements so the state would receive several hundred million dollars.
(Reporting by Eadie Chen and Tom Miles; Additional reporting by Rob Taylor and Sonali Paul in Australia and Eric Onstad in London; Editing by Ben Tan and Rupert Winchester)