Court hears of Chinese official's Fortescue threat

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This was published 14 years ago

Court hears of Chinese official's Fortescue threat

By Chalpat Sonti

ONE of China's most powerful bureaucrats vowed to get back at Andrew "Twiggy" Forrest and Fortescue Metals for not giving up enough of the iron ore company in exchange for developing its projects, a court has heard.

He Lianzhong, the deputy director-general of the National Development and Reform Commission, which approves Chinese investment overseas, told a Fortescue consultant in February 2005 the Chinese were about to "teach [the company] a lesson" after Mr Forrest told them he would not let the company fall into majority foreign ownership.

John Karkar, QC, representing Fortescue in an action before the Federal Court in Perth which could see Mr Forrest fined and banned as a company director, told Justice John Gilmour that Mr He and a Fortescue consultant, Lawrence Xin, knew each other from their schooldays and Mr Xin mentioned he had "a friend" who held shares in Fortescue.

The "friend" had heard Fortescue had signed contracts with the Chinese, but they were demanding a majority stake in the company in return.

"You better tell your friend to sell his shares immediately," Mr He is claimed to have told Mr Xin. Chinese companies wanted control of Fortescue, Mr He said, and as the company was resisting "we will teach them a lesson".

Mr Karkar said: "It seems the lesson took the form of the interview in [The Australian Financial Review]".

In that March 2005 report which prompted the Australian Securities and Investments Commission investigation, the Chinese said there were no binding agreements with Fortescue and that they were not prepared to build and finance the project.

A key ASIC witness , a former Fortescue head of marketing, Philip Kirchlechner, attended some meetings between the company and the Chinese entities in 2004 when the agreements were being negotiated.

Mr Kirchlechner, who said he resigned from Fortescue after Mr Forrest reneged on a promise to give him shares in the company, provided documents to ASIC outlining discussions where the Chinese sought an equity stake.

Cross-examined by Mr Karkar, he did not remember if he had seen the draft of a media release in August 2004 in which Fortescue claimed to have a "binding contract" with a Chinese group to build a rail line from the mine to Port Hedland.

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That was the first of several documents in which the term was used. Mr Kirchlechner said: "The thing I remember most clearly about [a meeting with Mr He in China in August 2004] was that this was the first time [Mr Forrest] actually agreed for the Chinese to buy an equity stake in [Fortescue]."

ASIC contends Fortescue knew its agreements with the Chinese could not be binding until the equity issue was sorted out.

Mr Karkar told the court that after believing it had signed up the Chinese by November 2004 to finance and build the project Fortescue had been hit by a "bombshell".

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