BREAKFAST DEALS: Is FIRB policy racist?

Send your tips to deals@businessspectator.com.au and don't forget to watch Deals TV for new rumours and reports later on this morning. Plus, you can follow us at www.twitter.com/WheelsDeals

A $450 million capital raising solves a funding problem for Lynas but illustrates a growing rift between China and the Foreign Investment Review Board – which Clive Palmer thinks is following 'racist' policy. Also, will Fortescue get its $6.8 billion funding agreement over the line today and will shareholders accept Macquarie Airports' internalisation?

Lynas Corporation

Rare earths miner Lynas Corporation, in a halt at 90 cents since Friday, has announced a fully underwritten capital raising at 45 cents per share: a whopping 50 per cent discount but something of a blessing if one considers the company's parlous situation three months ago. Back then Lynas's shares traded at the same 45 cent level and its only option was a controversial deal with China Nonferrous Metal Mining, which had planned to inject $505 million and take a 51.6 per cent interest in Lynas. That deal was scuppered by the Foreign Investment Review Board – ostensibly on grounds that China NonFerMet had crossed the magic 50 per cent level and should come back with a different offer – but more to the point, China mines 99 per cent of the world's rare earths and the government was loath to see that increase. Now, despite the huge discount, at least existing shareholders have the chance to dilute their own company. Existing shareholders get to participate in a one-for-one, non-renounceable offer to raise $295 million, which represents approximately two-thirds of the $450 million total. An unconditional placement to existing institutional investors will meanwhile raise $88 million and an underwritten conditional placement will raise an additional $67 million. Most importantly, from the company's perspective, the money raised will allow Lynas to complete the first phase of its mothballed rare earths project in Western Australia and to complete the construction and commissioning of a concentration plant in WA and an advanced materials plant in Malaysia. Lynas otherwise only had $16.7 million cash in the bank on June 30 and yesterday reported a net loss of $29.2 million for the financial year. JPMorgan are underwriters to the raising.

Clive Palmer's not happy

Queensland's richest man, Clive Palmer, for one is not happy with the Foreign Investment Review Board, slamming the government's policy towards Chinese investment in the resources sector as "racist". While shareholders in Lynas may see it differently, for example, Palmer told the Queensland Media Club that different rules for Chinese and American investors undermined free trade and that the Chinese did not like "the idea of being discriminated against because of the colour of their skin." Palmer, who spent part of his childhood travelling to China when it was largely closed off to Westerners, has named his company's coal venture in the Galilee Basin 'China First' and has long been an advocate of closer trade and investment links. His own experiences with companies like Metallurgical Corporation of China have not been the smoothest by any stretch of the imagination, but he is one of Australia's most well-connected businessmen doing deals with China and along with Fortescue's Andrew Forrest (more on Fortescue below), views China as more opportunity than threat. "We've got the opportunity to grab that if our politicians could only be fair and treat the Chinese people and Chinese government with the dignity they deserve," Palmer said. "Why should the average American, regardless of his education or qualifications, have the right to invest $950 million in Australia but the average Chinese person, regardless of how much money he has, is not allowed to invest without our treasurer saying so?" Perhaps it's because many Chinese companies are controlled by a totalitarian state with nuclear weapons, some would say.

Macquarie Airports

Macquarie Group may not be a member of the atomic club, but it's a company that certainly attracts a lot of attention and debate, which has most recently focussed on its management agreement with Macquarie Airports (MAp), the listed infrastructure company best known for running the Sydney Airport. MAp shareholders today vote on whether to accept Macquarie's proposal to relinquish management rights for $345 million in cash – previously the proposal was for $345 million in shares. Despite the controversy this proposal has attracted, it will probably get over the line. The only credible alternative, a $100 million management proposal from Global Airports (GAp), a consortium of ex-MAp managers led by football and infrastructure fund identity Mike Fitzpatrick, last night pulled out. Not that MAp's independent directors saw GAp's proposal as credible, describing it as incomplete and, initially, as a mere job application. GAp left the scene after MAp threatened it with a damages suit for falling share prices and lost revenue that could have reached the tens of millions. Certainly such damages wouldn't have been necessary if it was just a matter of cancelling the meeting and rebooking the room – even if it is the ballroom at Sydney's InterContinental. Ultimately GAp's directors, who were the first in court to delay the shareholder meeting, would have been personally liable for these damages, if awarded. The moral of this story? E-mail us your suggestions.

Fortescue and ANZ Banking Group

Fortescue Metals Group could be forced to delay its $6.8 billion loan deal with a syndicate of Chinese banks, according to The Australian. The deal was initially given a September 30 deadline, but it was widely thought that this was not enough time for an agreement of this magnitude. Last week's announcement that Fortescue chief financial officer Michael Minosora had resigned to join bauxite company Atlantic Limited caused some to worry that the move may herald the collapse of the funding deal. Speaking of Chinese finance, Australia and New Zealand Banking Group has become the first Australian bank to open up a branch in rural China and again according to The Oz, the company has also signed a memorandum of understanding with the China Development Bank to help the parastatal build a $25 billion portfolio of Australian assets. China Development Bank has already extended loans to a number of mining projects in Australia and has done business with, yes, Fortescue. ANZ chief Mike Smith told The Australian that the partnership would create a conduit for investment in Australia, New Zealand and the Pacific.

Wrapping up

In Deals TV today we'll be discussing more stories in banking including BNP Parisbas's €4.3 billion raising and speculation on Suncorp-Metway, plus more on the capital raising front with Willmott Forests and WDS. And finally, if you think elements in Australian society have been hostile towards China's investment plans, the situation is a lot worse in Nigeria, where militant groups have warned CNOOC and other Chinese firms about doing deals in the West African country. "The Chinese should be careful about investments until there is justice in that region," a rebel spokesman told Reuters. China doesn't seem to be fussed about sovereign risk however. The China Investment Corporation is said to have signed off on a $US2 billion investment in three US distressed asset funds, representing approximately one per cent of the sovereign wealth fund's portfolio.