Posted by: Frederik Balfour on June 5, 2009
A few months ago, when major banks around the world were struggling for survival, the deep-pocketed Chinese were the only bidders around. With more than $1.7 trillion in foreign reserves and a desire to secure a long term supply of raw materials China went on the offensive, spending tens of billions of dollars in oil deals with Brazil and Russia, and making bids for mineral producers, such as the eye-popping $19.5 billion offer by Chinalco to buy a stake in Rio Tinto in February.
As of today, that deal is dead. Rio Tinto has walked away from the Chinese and instead has come up with a solution with its existing shareholders to pump money into the company in a major setback for the Chinese. And according to the Wall Street Journal, it looks like state-backed China Minmetals might be denied its purchase of Oz Minerals for $1.2 billion less than one week before shareholders were to vote on the deal.
It seems that the window of opportunity that China had to pick up assets on very generous terms is fast slamming shut. The Australians were never very keen on having the Chinese controlling their underground riches, but at the time they weren’t in any position to spurn a white knight. But now with commodity prices and equity markets recovering, the liquidity logjam is loosening so companies are less desperate to get into bed with Chinese investors than they were.
But then again, the sclerotic decision making process on Chinese boards, who have to satisfy their masters in Beijing, is also to blame for the opportunities blown. “The processes are much too slow for the pace of international deals,” says Antony Dapiran, a partner with law firm Freshfields, Bruckhaus, Deringer in Shanghai. “They can’t put a bid on the table fast enough and they are losing out.”