Rio plunges but market holds, mortgage delinquencies up, but so is construction: Economy roundup

The market appears unaffected by the news yesterday that mining giant BHP has dropped a $US66 billion takeover bid for Rio Tinto, with the S&P/ASX200 down 0.42% at 12.20 AEDT.

The market appears unaffected by the news yesterday that mining giant BHP has dropped a $US66 billion takeover bid for Rio Tinto, with the S&P/ASX200 down 0.42% at 12.20 AEDT.

BHP cited worsening global economic conditions, European regulatory demands and debt levels as the main reasons for the withdrawal.

Rio Tinto’s shares dropped 40% in Europe after the announcement. Shares plunged 35% to $41.80 on the Australian market this morning, while BHP gained 8.2% to $28.38 after the two groups emerged from trading halts.

“There simply isn’t value for our shareholders,” chairman Don Argus says. “We have said that we would only seek to complete the transaction if it was in the best interests of BHP Billiton’s shareholders.”

Argus also says the level of debt associated with the takeover was a deterring factor.

James Wilson, mining analyst at DJ Carmichael & Co, told Business Spectator there is “no way BHP wants to take on that kind of debt”.

“Rio has $42 billion in debt and BHP only $6 billion… this, combined with obstacles with the European Union, left BHP little choice but to pull the offer.”

BHP says the European commission would have required the group to divest some of its iron ore operations, fearing a BHP-Rio merger would control too much of the market.

Meanwhile, the Australian sharemarket recovered this morning after falling on losses on Wall Street overnight. The benchmark S&P/ASX200 index was down 15.2 points or 0.42% to 3608.2 at 12:20 AEDT. The dollar has also lost ground, sliding back to $US64 cents.

Commonwealth Bank shares dropped 3.8% to $32.70, while ANZ also fell 2% to $14.26. Westpac slumped 2.7% to $17.35.

Telstra has finally made a bid for building the Rudd Government’s national broadband network, saying it will construct a $15 billion network. The group has refused to confirm for months whether it would bid, fearing the Government will require it to separate the network from its retail operations.

Proposals were due today at noon. Canadian group Axia and the Optus-led Terria group of companies also made proposals, while the results of the bidding process will be announced in January.

More than 840,000 home loans valuing $140 billion in total were outstanding at the end of September, ratings agency Fitch Ratings reveals in a new report.

The group says mortgage delinquencies rose in the six months between April and September.

The top 10 suburbs and towns experiencing the most stress are: Helensvale (Qld), Nelson Bay (NSW), Raymond Terrace (NSW), Katoomba (NSW), Greenacre (NSW), Guildford (NSW), Vaucluse (NSW), Fairfield (NSW), Cessnock (NSW) and St Marys (NSW).

“On a national basis, Australian mortgages, by value, that missed one or more payments, increased to 2.13% from 1.88%,” report author Ben McCarthy says.

Meanwhile, construction work has risen 4.4% in the September quarter, seasonally adjusted, to reach $34,241.6 million, new Bureau of Statistics data reveals.

But building work has dropped 0.5% in the same quarter to just $17,865.3 million.