China may buy commodity giant Billiton, researcher says

China May Want BHP Billiton

By Mandi Zonneveldt
Herald Sun, Melbourne, Australia
Thursday, June 7, 2007

http://www.news.com.au/heraldsun/story/0,21985,21861872-664,00.html?from...

BHP Billiton could be in the sights of a new $237 billion Chinese state-owned investment fund, according to Bell Potter research chief Peter Quinton.

The new Chinese State Investment Company was established last month to manage part of China's foreign investment reserves and made its debut on the world stage with a $US3 billion investment in private equity firm Blackstone.

The fund is being headed by China's former deputy finance minister Lou Jiwei and has been given a mandate to invest internationally.

Mr Quinton said yesterday he believed the Blackstone investment was a forerunner to bigger things -- including a possible tilt at BHP, which analysts have valued at more than $200 billion.

"They've acquired that 10 percent stake in Blackstone to learn the mechanics of private equity takeovers," Mr Quinton said.

"Twelve months down the track, they've now learned how to do mergers and acquisitions, and if you were the Chinese government, what would you do?" he said, pointing to China's concern about commodity supplies.

"If they get BHP they've got a diversified resource company, they've got oil, they've got iron ore, they've got base metals."

Analysts have agreed that Blackstone will provide a good training ground for the Chinese, and natural resources are tipped to be high on the fund's shopping list.

A Chinese government spokesman said recently the State Investment Company would look at direct investments in a bid to generate higher returns.

Merrill Lynch analysts Vicky Binns and Duncan Hay recently looked at the potential for a private equity tilt at BHP and said a bid could provide a return of about 34 percent.

A Chinese bid for BHP would be controversial and would be expected to attract the same level of attention as the recent foreign-led assault on Qantas.

It would be looked at closely by the Foreign Investment Review Board, which rejected Shell's attempt to take over oil and gas producer Woodside in 2001.

However, Mr Quinton believes a foreign bid for BHP could succeed.

"Woodside was rejected primarily because it was a 100 percent Australian-based operation, whereas BHP is a global resource company which just happens to be listed in Australia," he said.

About 60 percent of BHP shares are traded in Australia and the rest on the London Stock Exchange. Australians hold about 20 per cent of the stock.

However, it could be once-bitten, twice-shy for the Chinese, who lost a $US18.5 billion bid for US oil giant Unocal in 2005 amid national and economic security fears.

BHP shares closed 13 higher yesterday at $33.06.

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