Friday, July 3, 2009 7:59 AM
China plays by Teck's rules
Andrew Willis
Debt-heavy Teck Resources is now out of the woods, courtesy of a $1.74-billion investment from China.
In what may prove to be a pivotal deal in its global move to insure a steady supply of commodities, state-owned China Investment Corp. is buying into Canada’s largest independent mining company, and its dual share structure. Recall that just a few weeks ago, another Chinese agency failed to nail down an investment in Rio Tinto.
CIC is purchasing 101.3 million subordinated voting shares in Teck TCK-T at $17.21 each. This stock closed Thursday at $18.50. So CIC took a major position at a 7 per cent discount, which is about the same haircut Teck's existing shareholders would have taken had the company done a bought deal.
Scotia Capital and law firm Torys advised CIC on this investment. Law firm Stikeman Elliott worked for Teck.
What’s significant about this deal is that is shows an important, state-owned Chinese company is willing to play by capital market rules. Domestic pension funds talked to Teck about an investment on this scale, but pushed for an end to Teck’s dual share structure as a condition for the financing. Teck founder and chairman Norm Keevil was unwilling to give up the control that comes with two classes of shares.
CIC, on the other hand, is buying 17.5 per cent of Teck, but will hold just 6.7 per cent of the votes. The Chinese company has agreed to hold the stake for at least a year at this level, then is free to dispose of the shares.
Teck went deep into debt by dropping $14-billion to buy up all of Fording Canadian Coal Trust at the top of the commodity cycle. The company has since shed non-core assets and pushed back debt maturities to pay for this ill-timed acquisition.
The CIC investment should give Mr. Lindsay the remaining cash needed to fix the balance sheet, and pay for development of Teck’s base metal and oil sands properties.
