TORONTO--Canada's two largest pension funds are sounding out big
investment firms to partner on potential, separate bids to acquire
the Canadian iron-ore assets of global mining giant Rio Tinto PLC
(RIO, RIO.LN), according to people familiar with the matter.
CPP Investment Board and Caisse de depot et placement du Quebec
are both seeking potential partners for their own possible bids for
Rio Tinto's 59% stake in Iron Ore Co. of Canada. Analysts have
estimated the stake is worth around $4 billion, valuing the entire
business at around $7 billion.
Amid falling commodity prices, miners have been rushing to sell
assets as they look to manage large debt loads and investors'
complaints of low returns. With many would-be strategic buyers of
the Canadian iron-ore business sidetracked with their own efforts
to shed assets, big institutional investors and private equity
shops are now showing interest.
CPPIB is working with U.S. private-equity firm Apollo Global
Management LLC and looking for other partners, according to people
familiar with the matter. Meanwhile, Caisse de depot has held
discussions with possible partners for its own pursuit of the
assets, these people said.
Private-equity giant Blackstone Group LP (BX) has also expressed
an interest in the asset, according to people familiar with the
matter. At least two miners have also eyed IOC.
State-controlled
China Minmetals Corp. said last month it's considering making a
bid, perhaps with a partner. Commodities giant Glencore Xtrata PLC
(GLNCY) has also looked at the assets, according to people familiar
with the matter.
Canada's pension funds have typically focused their big
investments on infrastructure and real estate. These holdings offer
steady returns that match up well with the liabilities of their
pensioners and often perform well during periods of economic
turbulence.
But increasingly, these investors are showing more interest in
the resource sector as a way to diversify, hedge against rising
inflation risk and in some instances generate significant capital
gains. Toronto-based CPPIB is Canada's largest pension fund with
about 183.3 billion Canadian dollars ($174.2 billion) under
management, followed by Quebec's Caisse de depot, which oversees
about C$176.2 billion.
CPPIB generated a large gain from its investment in Progress
Energy Resources Corp. after Malaysia's Petroliam Nasional Bhd.
acquired the Calgary, Alberta, energy company last year. Both
Caisse de depot and Ontario Teachers' Pension Plan, another big
Canadian pension fund, have recently formed natural-resources
investment teams to focus on potential deals in the commodities
sector.
Despite falling iron-ore prices, the Canadian funds and
private-equity houses are attracted to IOC because it comes with
infrastructure such as a rail line and a Quebec port, according to
people familiar with the matter. A second round of indicative bids
for the IOC assets is expected next week, according to one of these
people.
Rio Tinto, which relies on iron ore for four-fifths of its
earnings, has been under pressure to increase returns for investors
and reduce its debt to safeguard against further declines in
iron-ore prices. Though still higher than last September's
multiyear lows, iron ore slumped to a seven-month low in May and
prices remain volatile, amid a glut of supply and fear of a
slowdown in China.
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