China cash lining up for Fortescue Metals Group – by Matthew Stevens, Amanda Saunders and Julie-anne Sprague (Australian Financial Review – May 25, 2015)

Chinese-linked companies have applied to the Foreign Investment Review Board seeking permission for an investment involving Fortescue Metals Group.

Australia’s third-largest iron ore producer has held discussions with China’s largest steel producer, Baosteel, and China’s largest conglomerate, CITIC, about a recapitalision to shore up its balance sheet.

It is unclear if the applications to FIRB are from CITIC or Baosteel but sources said there is interest in Fortescue from one or more companies which are Chinese or part-Chinese owned.

There are no moves to take over Fortescue. Instead, the companies are interested in buying a stake or increasing an existing stake, sources said. A deal could involve the partial selldown by the company’s founder, chairman and biggest shareholder, Andrew Forrest.

Fortescue and Baosteel already work closely. In June 2012 the two companies merged their magnetite iron ore assets in the Pilbara into a venture called FMG Iron Ore Bridge, which is 88 per cent controlled by the Perth company and 12 per cent owned by the Chinese steel giant.

Magnetite is a form of ore that requires processing to be used in the steel making process, which makes it more expensive to produce. Baosteel is also behind plans to unlock iron ore in the West Pilbara with the $7.4 billion West Pilbara Iron Ore project.

One source said Fortescue has previously held discussions with CITIC about a potential investment in its rail and port infrastructure.

Fortescue built its business using debt, which has put it under pressure several times when ore prices have weakened.

Mr Forrest has had informal discussions about selling a stake in the company’s mining assets, and potentially selling down part of his equity holding of about 30 per cent.

A Fortescue spokesman said the company “doesn’t comment on market speculation”.

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