The great Australian asset sale: Gottliebsen

Roll up! Roll up! The great Australian asset sale is now underway.

The Chinese and the Japanese are not waiting for global recovery so, for them, now is the time to move. For Australia the timing is bad, but we have limited choices because in most cases we are forced sellers.

First assets on the chopping block were minority stakes in prime Rio Tinto Australian resource projects where the company is proposing to repay debt by selling part interest in its prize assets to Chinalco, which is part of China Inc – though, of course, BHP may well launch a counter bid.

Within days of the Rio announcement, OZ Minerals has received a bid from Minmetals in China and Paperlinx has sold its mainland Australian pulp and paper assets to Nippon Paper Group Inc of Japan. While the respective offers were above recent market expectations, both are tragic stories and the market expectations were low.

OZ Minerals was a company that carried enormous promise, with world-class mines, but its cash budgeting simply did not take into account the rapid fall in metals prices and the lack of appetite among bankers for mining assets.

The Chinese believe that in time the world outlook for minerals will change, and for them the OZ Minerals bid is perfectly timed, particularly given the fall in the Australian dollar. Unless there is a higher bidder, Australians will sell.

BHP is a possibility as a counter bidder, but its eyes are on Rio. There will be great joy among the OZ Minerals institutional shareholders because they feared they would get nothing if the banks pulled the plug. In better times the Australian institutions might have backed a rescue, but they have their own set of problems.

AMP’s superannuation cash inflow in the December quarter almost halved. That experience will be duplicated around the investment industry. Some of the new superannuation cash is being directed away from equity and the existing institutional equity pool is constantly being drained by concentrating most capital raisings on institutions, partly because that generates the best fees for merchant bankers.

Paperlinx’s sale of its mainland Australia pulp and paper making assets for $600 million (plus a performance bonus) is a forerunner to more industrial asset sales. As with OZ Minerals, the price is better than the market expected, but if the Japanese have the management skills to change the culture of the operation and update the technology, they will do very well.

Paperlinx got into trouble because management did not fully realise that their pulp and paper making skills and culture had fallen behind the rest of the world. They tried to erect a modern pulp plant alongside an old one, but ran into deep problems. Add to that militant unions on the building site and the costs exploded and the project was a year late.

Given the Paperlinx debt, there was no choice but to sell the enormous pulp and paper complex at whatever price could be obtained. Paperlinx will now concentrate on its global paper merchanting business.

The fact that the Chinese and Japanese are snapping up our assets is a clear sign that they believe in the longer term.

This article first appeared on Business Spectator