By Miyoung Kim and Joseph Chaney
SEOUL/HONG KONG, Dec 10 (Reuters) - A collapse in commodity
prices due to the global financial turmoil is a blessing for
Asia, whose huge appetite for natural resources has prompted
cash-rich firms to go bargain hunting.
Analysts say Asia's hunger for resource assets, despite the
financial crisis, shows firms are prepared to risk further
commodity price downside to secure raw material supplies to
power economic growth that is still significantly faster than
in the United States and Western Europe.
Shares in Australia's third-largest oil and gas firm Santos
Ltd jumped on Monday on a report that China National Petroleum
Corp, parent of Asia's top oil and gas producer PetroChina, may
team up with a foreign firm to buy the company.
On Tuesday, sources said Oz Minerals, the world's
second-largest zinc miner, was attracting the interest of
Chinese metals companies, including CITIC Resources, Minmetals
Corp and Chinalco, parent of Aluminum Corp of China (Chalco).
And last week, sources told Reuters that Australian coal
miner Felix Resources was in talks about a possible takeover by
China's No.3 miner, Yanzhou Coal Mining Co Ltd, for around $2
billion.
"There are a number of companies that are distressed and
that will have to sell assets," said UBS's Patrick
Loftus-Hills, Managing Director, Investment Banking, Joint Head
of Asian Industrials Group.
"From the Asian perspective, in Japan, Korea, China and
India, there is still money available for those that want to do
deals," he added. "Matching companies with balance sheet issues
with those that have money is how many of us are spending the
majority of our days."
A case in point: Japanese trading house Itochu Corp said in
October it and six Asian steelmakers will spend over $3 billion
on a 40 percent stake in Brazilian iron ore miner Namisa as
they seek a stable supply of raw materials.
A month later, resource-poor South Korea offered $1 billion
of financing to Brazilian iron ore minor Vale to beef up its
interest in overseas mining projects.
A FALLING KNIFE?
While Asia's appetite for resource assets will grow, some
analysts say tight credit markets and sellers' reluctance to
part with assets at fire-sale prices may trim the number of
mega deals and longer negotiations.
A recent walkaway by BHP, the world's top miner, from a
hostile $66 billion bid for Rio Tinto highlights the increased
risk of buying a highly indebted firm in a market downturn and
a tendency for predators to be more selective.
Sharply reduced valuations -- BHP's all-share offer slumped
by two thirds from its $193 billion peak -- indicate buyers and
sellers will find it tough to narrow the price gap in volatile
market conditions.
"China Inc is cashed up in dollars ... and like many
investors appears unwilling to catch a falling knife," said
Citigroup's Clarke Wilkins.
Some bankers predict China, which has seen stakes in
private equity firm Blackstone Group and Morgan Stanley slump
in value, is encouraging state-backed firms to wait until
markets cool in 2009.
"The sense we're getting is that the Chinese government is
telling these guys to slow down," said a Hong Kong-based
investment banker at a Wall Street firm.
"They're saying, 'wait until Q1 or Q2, and then buy.'"
In Japan, where trading firms are leading an overseas
foray, big players such as top-ranked Mitsubishi are turning
cautious and reviewing investment plans as they fret about a
large appraisal loss as a result of a tumble in the value of
resource investments.
HUNGER PAINS
Despite the risks, some aggressive betters continue to
boost their investments.
Chinalco said it would increase its stake in Rio Tinto to
at least 14.99 percent, and South Korea's POSCO, the world's
No.4 steelmaker by output, raised its stake in Australian iron
ore miner Murchison Metals to above 12 percent as Murchison's
shares dropped to below A$1 from nearly A$5 in May.
Other players see themselves as "saving" assets from
strugglers, despite the difficulties faced in pricing a deal.
Last month, Sumitomo Corp, Japan's third-ranked trading
firm, agreed to buy U.S.-based Apex Silver Mines Ltd's interest
in a Bolivian zinc, copper and lead mine for $22.5 million.
Apex shares have slumped to 60 cents from last year's close of
$15.24.
"The Japanese will be very active," Loftus-Hills of UBS
said.
"The difference between the Japanese and Chinese is that
the Japanese have been doing this for a long time," he added.
"You'd never know it, but they have stakes in major assets all
over the world.
"For the Chinese, the question is: Do we do it like the
Japanese, or do we want control?"
(Additional reporting by Yuko Inoue in TOKYO)
(Editing by Ian Geoghegan)
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