Monday, June 16, 2008

Rio Encourages Prudent Approach To Foreign Investment

Rio Tinto’s chief executive, Tom Albanese, has weighed into the debate over investment by foreign governments in Australia, saying the mining sector's growth depends on foreign investors' money.

Mr Albanese warned regulators yesterday against being too defensive when assessing stakes from funds linked to foreign governments, known as sovereign wealth funds, amid a surge in investment in the sector.

"Most of us agree that unlocking the full force of Australia's mineral potential will require further direct foreign investment," he said. "That's why I believe the best approach is one that is based not on short-term fear, but is considered, prudent, and focused on the opportunity."

Mr Albanese's comments reiterate a well-worn argument that Australia cannot afford to obstruct investment with protective regulation, but take on added significance amid BHP Billiton's $175 billion hostile takeover bid for Rio.

The Chinese government-owned Chinalco bought a 9 per cent stake in Rio in February, prompting reports it would try to block BHP's takeover to prevent iron ore industry consolidation. Rio's management opposes the takeover, arguing it undervalues the company.

Soon after Chinalco's purchase, the Federal Government introduced guidelines for the approval of sovereign wealth funds, which have been estimated to control 2 per cent, or $3300 billion, of assets on world markets. The move was widely seen as a warning shot against strategic raids by sovereign funds that would harm the national interest.

"We recognise there is a very important debate that's going on in Australia," Mr Albanese said. "We are very encouraged by all the work that Treasurer Wayne Swan is doing with respect to clarifying investment by sovereign wealth funds."

The Chinese government-owned Sinosteel also bumped up its stake in the iron ore miner Midwest to 43.6 per cent last week. BHP's chief executive, Marius Kloppers, said a Chinese raid on BHP shares would not surprise him after a senior Chinese steel industry official revealed there was interest.

And China's regulators last week approved Australia as an investment destination for the country's financial houses, which is expected to increase the flow of funds from coffers flush with export revenue.

Source: Sydney Morning Herald

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