Sichuan Hanlong Group’s botched $1.2 billion bid for Australia’s Sundance Resources Ltd. (SDL) brings the value of China’s recent failed mining deals to $45 billion, a record that’s prompted stricter Chinese scrutiny of acquisitions.
Chinese companies attempted $107 billion worth of mining takeovers over the past five years, with about $45 billion, or 42 percent by value, of deals ending in failure. Of $562 billion of deals proposed globally in the same period, $180 billion, or 32 percent, didn’t proceed, according to data compiled by Bloomberg.
The collapse yesterday of the bid for Sundance, seeking to develop a $4.7 billion iron ore project in Africa, comes after a string of failed investments by Chinese companies, including the demise of a $19.5 billion investment in Rio Tinto Group in 2009. Regulators under China’s new leadership team of Xi Jinping and Li Keqiang have told state-owned companies that overseas takeovers will face a more stringent approval process.
“Chinese regulators are probably going to allow fewer deals to go through as they become more discerning,” Jonathan Li, a corporate partner at Clayton Utz, said in a phone interview from Melbourne. “The market will come to expect that when a deal involving a Chinese acquirer is announced, all the internal Chinese approvals will already have been obtained.”
The termination of Hanlong’s bid for Sundance is China’s biggest overseas acquisition failure since April 2011 when Minmetals Resources Ltd., the Hong Kong unit of China’s biggest metals trader, abandoned its C$6.04 billion ($5.9 billion) offer for Equinox Minerals Ltd.
China’s largest failed deal was the $19.5 billion proposed investment in Rio, the world’s second-biggest mining company, by Aluminum Corp. of China that would have given Chinalco, as the state-controlled company is known, stakes in assets including iron ore mines in Australia.
Sundance shares fell a record 48 percent to 11 Australian cents at the close of trade in Sydney.
Closely held Hanlong, whose billionaire chairman Liu Han is reportedly in police custody in China after being detained last month, didn’t meet a second funding deadline last month for the deal, prompting further talks that failed. It had been told by Chinese government agencies to study partnerships with state- owned enterprises to get financing for its proposal to buy the shares in Sundance that it didn’t already own.
Sundance ended the accord because the funding condition wasn’t met and after being told by the Chinese company that it was unlikely to meet other required conditions, the Perth-based company said yesterday in a statement. It’s in talks with other Chinese and non-Chinese groups on the Mbalam-Nabeba iron ore project, Sundance said, without naming them.
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