Baosteel buys into Aquila, while CIC invests in Canary Wharf

The deep pockets of Chinese acquirers relative to other companies around the world were evident again in two deals announced on Friday. China's largest steel manufacturer, Baosteel Group Corporation, will acquire up to 15% of Perth-based Aquila Resources for $240 million, while state-owned China Investment Corporation will participate in a $1.4 billion bail-out of Canary Wharf developer Songbird.

Baosteel and Aquila inked a memorandum of strategic co-operation and a share subscription agreement allowing Baosteel to buy 43.9 million new shares for A$285.6 million ($240 million), or a price of A$6.50 per share. With its investment, state-owned Baosteel has negotiated one directorship on the Aquila board and has nominated Dai Zhihao, a vice-president of Baosteel who joined the Chinese firm in 1983, to take up the seat.

Shanghai-based Baosteel has also negotiated anti-dilution rights whereby it will be entitled to participate in any issuance of new shares by Aquila to maintain its shareholding. Baosteel has agreed not to increase its shareholding in Aquila above 19.99% or to sell the shares it is currently being allotted until August 2010. As a result of the investment, Baosteel will become the second-largest shareholder in Aquila.

Baosteel's investment will enable Aquila to make progress on some of the existing projects in its portfolio for which it is capital-constrained. Baosteel is advised by Deutsche Bank.

This is Baosteel's first major international strategic investment in a listed company. It is in line with China's strategy to secure long-term supply of iron ore, coking coal and manganese for its core businesses. 

As part of the agreement between the two companies, Baosteel also intends to make direct investments in some of Aquila's projects and help the Australian company to raise financing to commercialise those projects. Baosteel will work with Aquila to raise "low-cost financing from Chinese institutions for a number of the company's projects, including the strategic West Pilbara iron ore project", said Aquila in its Australian Securities Exchange filing on Friday.

Aquila added that Baosteel's support will be of significant importance, value and advantage to it and termed the strategic co-operation "a potential underwriting of its key development projects".

Baosteel and Aquila have agreed a process whereby Baosteel will be allowed to conduct initial due diligence and exclusive negotiations on Aquila projects, should the company decide to introduce a third party into any of them.

Aquila and Baosteel also plan to establish a joint sales arrangement to assist Aquila in distributing its production in China. The two firms will ink long-term raw material off-take arrangements from these projects once they are in production.