DataRoom AM: Betting on Fortescue

A US funds management giant takes a stake in Fortescue, while events in Mongolia take an interesting turn for Rio Tinto.

Fortescue Metals Group has a new headliner partner from the US, heralding a possible rebound in the iron ore price.

Meanwhile, FlexiGroup’s chief executive doesn’t hold any grudges after dropping out of the race for GE’s consumer finance business, and Rio Tinto faces an interesting turn of events in Mongolia.

Fortescue Metals Group has introduced us to its brand new substantial shareholder – US fund management giant The Capital Group.

TCG emerged on the FMG register yesterday with a 5.02 per cent stake, which it paid $365 million for at $2.34 a share.

That’s chump change for the funds management giant, which has $US1.25 trillion ($1.61 trillion) at its fingertips. Still, it’s good news for Fortescue, the iron ore market, or both, as it’s a bet on one or both of them. Probably both.

FlexiGroup chief executive Tarek Robbiati has shrugged off missing out on GE Capital’s $7.5 billion consumer loans business, saying a sale to private equity would benefit the local industry.

According to The AustralianMacquarie Group and private equity big guns TPG Capital, Kohlberg Kravis Roberts and Apollo are all among the suitors for the GE Money business.

In resources, Mongolia’s deteriorating financial position has forced it to consider selling part or all of its 34 per cent stake in the Oyu Tolgoi copper-gold mine in return for royalties, an unfortunate catalyst for a solution to its stand-off with Rio Tinto.

According to The Australian, Rio wouldn’t comment on whether this could serve as a breakthrough to the impasse between the two parties over the $US5bn ($6.4bn) underground expansion to the mega-project.

Tellingly, Australia’s sovereign wealth manager, The Future Fund, has cut its equities allocations and bumped up its cash as the volatility grips the markets, according to a Bloomberg report.

The fund lowered its allocation of global stocks to 30.3 per cent at the end of 2014, down 2.8 percentage points from a year earlier.

Elsewhere, Downer EDI chief executive Grant Fenn is looking to shake off a 4.4 per cent drop in first half profit with some retail therapy.

"The next 18 months are going to be very interesting for the sector," Fenn told Fairfax Media. "We've got a very strong balance sheet, our brand is good, our capabilities are good, and if the right opportunity comes along to grow our business, then we'd think about that for sure."

Meanwhile, The Australian Financial Review believes IFM Investors is looking to refinance Port Botany and Port of Kembla less than two years after leading AustralianSuper and Abu Dhabi Investment Authority's Tawreed Investments on a $5.1bn bid for the pair.

There’s been an extraordinary development in Melbourne’s East West Link saga that has potential ramifications for companies dealing with governments in the lead up to an election.

The Victorian opposition has revealed a previously secret letter to the East West Link consortium saying it would be guaranteed compensation if the conservatives lost the election to the anti-road ALP. They did.

While the now-opposition’s insistence that the letter only reinforces what was already in the contract is accurate and the ALP’s claim that the letter amounts to an act of “treason” is overblown, the development should give companies dealing with governments in the lead up to an election pause for thought.

The AFR reports northern Australia’s largest aviation operator, Airnorth is tipped to be sold as early as tomorrow.

And finally, Fairfax Media has a cracker story on the inner workings of investment banking – specifically the codenames professionals use in order to keep deals confidential.

"Australian bankers appear to be more savvy and security-conscious when it comes to choosing code names," said Philip Whitchelo, vice-president of strategy and product marketing at Intralinks, in the Fairfax report.

"For example, Australia has the highest use of the anonymous 'X' as a code name than any other country. As the top Australian code name, 'X' is twice as popular as the next most popular, 'Aqua'."

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