February 19, 2009 2:00 am

China in talks with Australia over foreign investment rules

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The head of China Investment Corp, the country's $200bn sovereign wealth fund, flew to Australia to meet its federal treasurer shortly before Rio Tinto announced plans for a $19.5bn cash injection from Chinalco, the state-owned metals group.

Lou Jiwei, CIC chairman, also held talks with Colin Barnett, premier of the resource-rich state of Western Australia, and with Fortescue Metals, Australia's third-largest iron ore producer. Fortescue, which has a stock market value of A$8.4bn (US$5.4bn), yesterday admitted it was exploring "investment opportunities" with CIC and Anglo American, the mining group.

Mr Lou sought clarity on Australia's foreign investment rules, which were strengthened last year to highlight "national interest" considerations over investments by state-backed entities or SWFs.

Mr Lou travelled at the invitation of David Murray, chairman of the Future Fund, Australia's sovereign wealth fund, and had an "exchange of views" with him on "how to protect an open and stable global investment -climate", according to CIC.

While in Australia, Mr Lou also met Kevin Rudd, the prime minister, as well as a number of local companies, with which he discussed potential business opportunities, CIC said.

Days after Chinalco's deal with Rio, the Anglo-Australian listed group, the Beijing-based metals producer Minmetals launched a recommended A$2.6bn bid for Oz Minerals, a diversified miner struggling to refinance A$1.2bn of debt.

The deal activity will force Canberra to make tough decisions that could unsettle relations with China, Australia's biggest bilateral trading partner.

In response to the Rio/Chinalco deal, which included a $7.2bn convertible bond that could see the Chinese group lifts its Rio stake to 18 per cent, Canberra moved to amend its foreign takeover laws so convertible debt would be counted as equity.

Chinalco will therefore have to seek approval for the deal from Australia's Foreign Investment Review Board. Wayne Swan, Australia's treasurer who can veto foreign deals, said yesterday he had told Mr Lou that foreign investment in Australia was welcome but it must comply with the country's "guidelines and meet our national interest test".

He added that message was conveyed to many parties from other countries.

However, BHP Billiton, the world's largest mining group, has also highlighted the potential conflicts if a leading export country for Australia's resources also becomes a major shareholder in a company that sells such commodities.

In response to an Australian Securities Exchange query about a 12.4 per cent share price jump yesterday giving it a market value of A$8.4bn, Fortescueconfirmed "recent meetings and site visits with representatives of [CIC and mining group Anglo American] to ex-plore investment opportunities".

It has appointed JPMorgan, Grant Samuel and Azure Capital to "evaluate approaches and proposals".

Fortescue said yesterday that talks "are preliminary and incomplete".

Additional reporting by Jamil Anderlini in Beijing

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