Fortescue has taken out a first-kind $3B loan from China. Why, exactly, is a good question

Fortescue (ASX:FMG) shares were up +1.5% on the Friday session down under, and it wasn’t just because iron ore prices continue to hover above US$100/tn on the SGX.

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In this instance, Fortescue has taken a first-of-its-kind A$3B (RMB14.2B) loan from China, in a deal FMG described as a “landmark transaction that reflects the depths of Fortescue’s long-standing relationships with China.”

In many ways, the company’s Friday disclosure read more like a political release than a market update. Especially because Fortescue says the money will be used to progress the company’s decarbonisation agenda.

Take the commentary from Twiggy, former-but-also-still hydrogen advocate:

“This isn’t just a financial transaction. It’s a signal of what is possible when partners are aligned in ambition,” Forrest said.

“As the United States steps back from investing in what will be the world’s greatest industry, China and Fortescue are advancing the green technology needed to lead the global green industrial revolution.”

Ah. There’s the meat of it – we’re still in an environmental frame of thinking.

Fair enough (regular HotCopper readers will know that I, myself, often wonder aloud why we don’t just bring back the carbon tax.)

But it is perhaps the securing of an A$3B loan from “leading Chinese, Australian and international lenders” put together that raises another question. Especially seeing as the company was quick to remind that: “Fortescue is a core supplier of iron ore to China and generates RMB revenues through its iron ore sales.”

So what’s going on? HotCopper users were quick to point out that, for all intents and purposes, Fortescue doesn’t appear to need a A$3B loan to do anything, even the ambitious prospect of decarbonisation.

In fact, the company’s CFO also spoke of the company “[expanding] its banking syndicate to institutions with Renminbi lending capabilities,” (read, banks in China).

Is Andrew Forrest back on his feet after a humiliating round in the hydrogen ring, and pivoting to Chinese support now for a revitalised energy transition campaign?

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Is the company trying to keep the Chinese government happy in the face of an uncertain iron ore price outlook heading into the late 2020s, a conversation over which looms large Rio Tinto’s Simandou project?

Or is the company just hoping to, I don’t know, invest in Chinese mines?

Whatever the case, the market wasn’t too bothered.

FMG last traded at $18.79/sh.

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