The AFR has a hopeful story for iron ore majors today:
The state-owned CITIC Group has agreed to inject a suite of assets into its Hong Kong-listed subsidiary, CITIC Pacific, marking the second bailout by Beijing in just five years.
The deal should provide some financial stability for CITIC Pacific, which has invested more than $US10 billion ($10.8 billion) in WA’s Sino Iron project – nearly three times more than its original budget.
“Without this deal, CITIC Pacific was heading for the rocks,” said Tim Murray, the managing director of Beijing-based research firm J Capital. “One way or another it was always going to be rescued by its parent.
Mr Murray goes on to argue that CITIC Pacific’s rebooted balance sheet could now survive the closing the Sino Iron mine.
A little game theory is in order. Did the Chinese state-owned enterprise conduct its second bailout of its local subsidiary in five years so that it could shut the mine and lumber its other businesses with repayment of the $10-12 billion debt?
Or, did it bail out the subsidiary to prevent the mine from being foreclosed so that it can run at negligible profits or losses, servicing its debt, while applying maximum downside pressure to iron ore prices saving the Chinese economy billions upon billions of dollars every year for as far as the eye can see?
