We spoke with former Australian Ambassador to China Geoff Raby, who is now Chairman and CEO of Geoff Raby & Associates, following his keynote presentation at Mines and Money Beijing 2013.
In Part 2 of the interview (read Part 1 here), we asked Mr Raby about what changes he has witnessed in the profile of Chinese resource investors, the rise of the private funds and investors in China, opportunities for mining companies in the Chinese market and M&A trends between Chinese investors and international mining companies.
View this interview as a video
Is the profile of the Chinese resource investor changing? Is there a new wave of private funds and private investors?
Oh very much so. I think the last four to five years have seen a big increase, albeit from a tiny base, of private sources of capital from China, both just from high net worth individuals, but also through different funds, mainly out of Hong Kong, investing in resources overseas. I mentioned the case of Talison, which is a private Chengdu company. This is a model of how Chinese can invest overseas – a big acquisition, 870 million, done very quickly, highly professional Australian advisers were used, and was put to bed without a ripple. The contrast is something like Hanlong, also from Chengdu, when they tried to acquire Sundance Resources. That dragged on for years, and in the end it has come to nothing. The whole thing has ended in tears. There, I think, the private Hanlong firm was unable to work its way through the Chinese system effectively, and so even though these are private firms, they do still need to get the [promoter] of the Chinese official system.
A series of M&A deals between Chinese investors and foreign companies have fallen through in the last 24 months – what are the common themes to these discussions breaking down? What are the challenges for each party involved?
A big problem in these deals is that the NDRC doesn’t give its approval until basically the final price is agreed. For the foreign vendor, you won’t agree on a final price until you know that the purchaser has all of the prices agreed and they have the capacity to actually pay. It’s very difficult for boards, particularly publicly, at least in foreign companies, to go to their shareholders, as indeed they must under the rules of continuous disclosure, if in fact they’re not sure that the purchaser has the authority or the capacity to go ahead with the deal. So this is a sort of clash of two systems, and it does make it particularly difficult in some of these cases. If it’s a big SOE, you can be pretty confident, if they agree on a price, they’ll get the final approvals. I guess you can be less confident if it’s a private firm if they’re going to get those last approvals. So it is a big challenge for foreign boards to know when to go to shareholders and recommend an acquisition.
Do foreign mining companies need to position themselves differently as the profile of Chinese resource investors changes?
I’d put it around the other way and say there’s still a lot of opportunity in China. China is not the only place where there’s a demand for foreign resources and the willingness to invest in them, but it’s still a pretty hot place for capital into the resources sector.
What role does Mines and Money Beijing play in helping to establish business partnerships between Chinese investors and foreign mining companies?
I think Mines and Money Beijing is an excellent forum for this. You only have to see the big rollout of people yesterday and today, and the range of Chinese firms and financial institutions that are represented. People want to be here because they know it’s a great place for networking and building those relationships. Yes, that’s what it’s about, getting to know people, building the relationships, and Mines and Money has got a critical mass to draw in a very big attendance and a very representative attendance across the mining sector in China.
Mines and Money Beijing will return June 16-19, 2014. Visit the website for more information and keep informed of updates here.
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