China's Hunan Valin Iron & Steel Group said it has concerns about Fortescue Metals Group Ltd's "high" debt level after it confirmed talks to invest in Australia's third-largest iron ore producer.
"We do have concerns that they have rather high debt levels and the financial risks are quite big," Valin's General Manager Li Jianguo said yesterday in a Bloomberg News interview in Beijing.
"We haven't hired a banker on this because the talks are still in a very initial stage," Li said.
Cameron Morse, a Perth-based spokesman for Fortescue, declined to comment on specific talks.
Fortescue, with A$4.9 billion (US$3 billion) in debt, sold shares in December to pay bills as the global recession slashed asset values and commodity prices. Australia may hold an inquiry to scrutinize deals by Chinese state-owned companies after Aluminum Corp of China's proposed investment in Rio Tinto Group.
"Although the assets are very cheap now, the risks in pricing and legal issues are high," said Zheng Dong, a Beijing-based analyst at Guosen Securities Co.
Fortescue dropped 3 percent to close at A$2.90 yesterday, reversing gains of as much as 11 percent, in Sydney trading after the debt comments by Valin, China's ninth-largest steel maker. Hunan Province-based Valin's listed unit rose 4.4 percent to 5.88 yuan (86 US cents) on the Shenzhen Stock Exchange.
Fortescue has "non-current" borrowings of A$4.9 billion as of December 31, according to a January 30 company report. It has a market value of A$8.1 billion.
"Steel makers should be prudent in making decisions," said Zhou Xizeng, a Beijing-based analyst with CITIC Securities Co. "The strategy is clear and right for China to buy mining assets overseas because prices may be near the bottom."
Baosteel Group Corp, China's largest steel maker and a customer of Fortescue, isn't in talks to invest in the Australian producer, Chairman Xu Lejiang said yesterday in an interview. Reuters on Wednesday said Baosteel was in talks with Fortescue, citing unidentified people.
(Shanghai Daily February 20, 2009)