Harbinger sells stake
Details emerged last night of the much-rumoured deal between Fortescue Metals Group and China's Hunan Valin Iron and Steel.
Last night in Hong Kong, the details of the much-speculated deal between Fortescue Metals Group and Hunan Valin Iron and Steel emerged.
Valin has agreed to acquire a strategic 16.5 per cent stake in Fortescue, through the subscription of 225 million new shares in Fortescue at $2.48 per share and the purchase of 275 million shares from American hedge fund Harbinger Capital Partners at an unknown price. Fortescue shares last traded on February 20 at $2.83.
Valin, which will fund the acquisition through a combination of its cash reserves and finance facilities, is being advised by John MacKinnon and Zhang Xiuping from Deutsche Bank's Sydney and Beijing offices, as well as Louis Chiam, Malcolm Brennan and Jin Xiong from Mallesons Stephen Jaques.
For Fortescue – being advised by Alan Young and David Hine from JPMorgan, Dan Gerber and John Morrison from Grant Samuel and Mark Barnaba from Azure Capital, plus a team from legal firm Clayton Utz – the funds it has raised will be used to help ramp up production to 55 million tonnes of ore per annum. Fortescue expects to ship 38 million tonnes of the Pilbara's finest in the 2009 calendar year.
Despite the $558 million capital injection from Valin, Fortescue is also discussing with its advisory team the possibility of a hybrid funding package from China Investment Corporation, which JP Morgan and Southern Cross Equities (recently acquired by Bell Financial) are being tipped to manage.
All in all, Valin paid $1.2 billion for its strategic stake, underscoring the commitment of the Chinese to get a better grip of the ore supply chain after a few nasty years at the mercy of the iron triumvirate: Vale, BHP and Rio Tinto. And at $2.48 a share, Valin is paying a fraction of Fortescue's peak of $12.13 in June of last year.
It is thought that Harbinger has long been keen to divest part of its stake in Fortescue, but the timing and price of this sale is unfortunate for the hedge fund, which has seen investments in other areas hammered by the credit crisis. The Alabama-based fund, run by Philip Falcone, focuses not just on Australian resources companies but on US event-driven situations, distressed debt, turnarounds, short-selling and capital structure arbitrage.
Valin has meanwhile also signed a business cooperation agreement with Fortescue around a further off-take in addition to existing supply agreements. The parties have also proposed an iron ore processing joint venture, either in Australia or China, and a low-grade hematite processing plant in Australia.
"We have great confidence in Andrew Forrest and the team at Fortescue and view this as a long-term cornerstone investment in the company as a stable cornerstone investor," said Valin chairman Li Xiaowei.
"We have a very positive relationship with Fortescue and see the Australian market as one providing great opportunities for investment, partnership and long-term growth."
Valin is headquartered in Hunan Province's capital city Changsha, which is also the home of the world's biggest Chinese restaurant. Valin has a minority stake in subsidiary company Hunan Valin Steel Co, listed on the Shenzhen stock exchange. The listed entity is one-third owned by global steel giant ArcelorMittal.
Li Xiaowei will also be joining Fortescue's board as part of the deal. "Mr Li Xiaowei will be a valuable contributor to the Fortescue board and will provide substantial skill and expertise to enhance the growth of Fortescue and Australia's mining sector," said Fortescue boss Andrew Forrest. Li has a background in mining and metallurgy and has a degree in business management.
Valin, which makes steel bars, pipes, wires and plates, has an output of around 9 million tonnes of steel and 8 million tonnes of steel products. The deal remains subject to FIRB approval.
Valin has agreed to acquire a strategic 16.5 per cent stake in Fortescue, through the subscription of 225 million new shares in Fortescue at $2.48 per share and the purchase of 275 million shares from American hedge fund Harbinger Capital Partners at an unknown price. Fortescue shares last traded on February 20 at $2.83.
Valin, which will fund the acquisition through a combination of its cash reserves and finance facilities, is being advised by John MacKinnon and Zhang Xiuping from Deutsche Bank's Sydney and Beijing offices, as well as Louis Chiam, Malcolm Brennan and Jin Xiong from Mallesons Stephen Jaques.
For Fortescue – being advised by Alan Young and David Hine from JPMorgan, Dan Gerber and John Morrison from Grant Samuel and Mark Barnaba from Azure Capital, plus a team from legal firm Clayton Utz – the funds it has raised will be used to help ramp up production to 55 million tonnes of ore per annum. Fortescue expects to ship 38 million tonnes of the Pilbara's finest in the 2009 calendar year.
Despite the $558 million capital injection from Valin, Fortescue is also discussing with its advisory team the possibility of a hybrid funding package from China Investment Corporation, which JP Morgan and Southern Cross Equities (recently acquired by Bell Financial) are being tipped to manage.
All in all, Valin paid $1.2 billion for its strategic stake, underscoring the commitment of the Chinese to get a better grip of the ore supply chain after a few nasty years at the mercy of the iron triumvirate: Vale, BHP and Rio Tinto. And at $2.48 a share, Valin is paying a fraction of Fortescue's peak of $12.13 in June of last year.
It is thought that Harbinger has long been keen to divest part of its stake in Fortescue, but the timing and price of this sale is unfortunate for the hedge fund, which has seen investments in other areas hammered by the credit crisis. The Alabama-based fund, run by Philip Falcone, focuses not just on Australian resources companies but on US event-driven situations, distressed debt, turnarounds, short-selling and capital structure arbitrage.
Valin has meanwhile also signed a business cooperation agreement with Fortescue around a further off-take in addition to existing supply agreements. The parties have also proposed an iron ore processing joint venture, either in Australia or China, and a low-grade hematite processing plant in Australia.
"We have great confidence in Andrew Forrest and the team at Fortescue and view this as a long-term cornerstone investment in the company as a stable cornerstone investor," said Valin chairman Li Xiaowei.
"We have a very positive relationship with Fortescue and see the Australian market as one providing great opportunities for investment, partnership and long-term growth."
Valin is headquartered in Hunan Province's capital city Changsha, which is also the home of the world's biggest Chinese restaurant. Valin has a minority stake in subsidiary company Hunan Valin Steel Co, listed on the Shenzhen stock exchange. The listed entity is one-third owned by global steel giant ArcelorMittal.
Li Xiaowei will also be joining Fortescue's board as part of the deal. "Mr Li Xiaowei will be a valuable contributor to the Fortescue board and will provide substantial skill and expertise to enhance the growth of Fortescue and Australia's mining sector," said Fortescue boss Andrew Forrest. Li has a background in mining and metallurgy and has a degree in business management.
Valin, which makes steel bars, pipes, wires and plates, has an output of around 9 million tonnes of steel and 8 million tonnes of steel products. The deal remains subject to FIRB approval.
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