THE country’s new US$200 billion sovereign wealth fund yesterday denied reports that it may step into an iron ore bidding war with Australian miner BHP Billiton for London-based Rio Tinto.

The sovereign wealth fund’s media relations officer Bai Xiaoqing said that “there is absolutely no such thing” describing a report in the China Business newspaper as baseless.

China Iron & Steel Association (CISA) secretary general Luo Bingsheng also said yesterday he had not heard of any plans by steelmakers to launch a joint bid with China Investment Corp. (CIC) for Rio Tinto, adding that such a bid would be unlikely. Luo said, however, that Chinese companies should acquire more resources overseas and build closer relations with other major foreign miners.

CISA said recently, following a meeting with BHP chief executive Marius Kloppers, that it didn’t want to see a “monopoly” on the raw material market as a result of a merger between to the two Anglo-Australian iron ore giants.

The China Business over the weekend quoted unnamed sources as saying that China Investment Corp. is considering to unite with domestic steelmakers to bid about US$200 billion for Rio Tinto to counter a takeover offer from BHP, as China fears a combined entity would have too much power over iron ore supply and pricing.

Although China’s appetite for resources has stirred speculation that it may try to block a merger between BHP and Rio Tinto, a counter-bid by Chinese State-controlled entities could face tough regulatory challenges.

Rio Tinto Ltd. shares were up 7.9 percent at A$138.70 (US$122.74) yesterday, helped by expectations the miner will talk up its valuation in an investor presentation later yesterday. However traders were skeptical about the report.

Analyst Warren Edney at ABN Amro noted that Rio Tinto is already a foreign controlled company so a bid by another listed company or companies in China is a possibility.

However, if a government entity such as the sovereign wealth fund were to play a part, there would be regulatory issues, he said.

The China Business said it expected the Chinese Government to take action on the bid soon, and the price offered by the mainland consortium would be US$200 billion.

“We are studying how the China side might respond to the BHP Billiton bid for Rio Tinto earlier this month,” the China Business quoted a source as saying.

“Our proposal is that several State-owned steelmakers such as Baoshan Iron and Steel, Shougang Group and Angang Steel should join hands with CIC to form a consortium to launch a bid. China will move very soon,” the source said.

Given how spooked China is by a BHP-Rio tie up, a move by China to protect its own steel industry is widely expected.

But it is unclear if its recently set up sovereign wealth fund can play a role. Such a bid would probably go against CIC’s main stated goals, which are to increase return on China’s burgeoning foreign exchange reserves through long-term investment, rather than to promote strategic interests of Chinese firms. The move would also likely raise suspicion among foreign governments already concerned about the motives of China’s sovereign wealth fund.

“The CIC needs to first have its investment platform ready before making such investments,” said a CIC official, who declined to be named. “The platform includes investment system, staff, and procedures. So far we don’t have a timetable for the establishment of the platform.”

CIC Friday opened a Web site in both English and Chinese to recruit for jobs ranging from risk analysts to portfolio managers and public relations officers, to manage its purchases of stocks and bonds on global financial markets.

Such a move from China could also face similar hurdles to government-owned Chinese oil producer CNOOC Ltd.’s bid for U.S. oil producer Unocal Corp., which triggered fierce opposition in the United States on security concerns and eventually was withdrawn.

In 2005, CNOOC launched a bid for California-based Unocal, creating a political furor that spurred the U.S. Congress to pass legislation requiring closer scrutiny of foreign purchases of certain U.S. assets. The bid failed, and Unocal was acquired by Chevron Corp.

A CIC-led bid for Rio Tinto would also likely fail on regulatory grounds, said analyst Gavin Wendt at Sydney-based Fat Prophets.

“I don’t think the Australian Government would like to see Rio Tinto assets in Australia in foreign hands. Chinese ownership is unpalatable for Australian regulatory authorities,” said Wendt.  (SD-Agencies)