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China says Rio-BHP ore JV smacks of monopoly

Thursday, Jun 18, 2009
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BEIJING (Reuters) - Rio Tinto and BHP Billiton's proposed iron-ore joint venture has "a strong monopolistic flavor" 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 color 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 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 ($1.46 billion) 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.

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