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html Rebecca Le May, AAP February 24, 2009 07:10pm FORTESCUE Metals Group has confirmed a Chinese steel maker will take up a strategic stake in a $558 million equity investment at a deeply discounted price. However, while Hunan Valin Iron and Steel says it will take a holding of as much as 16.5 per cent in the iron ore miner, a standstill agreement prevents Valin from having an interest of more than 17.5 per cent in Fortescue. Under the terms of the share subscription agreement, Valin will subscribe for 225 million new shares in Fortescue at $2.48 per share, a 35 cent a share, or 12.4 per cent, discount to Fortescue's last traded price of $2.83 before it entered into a trading halt. Valin has also entered into a conditional agreement to buy 275 million existing Fortescue shares from US hedge fund Harbinger Capital. This amount represents a small proportion of the US fund's 15.9 per cent stake in the iron ore miner. "If the share subscription agreement gains the required regulatory approvals, Valin's equity in Fortescue will increase to more than 16 per cent of the expanded issue capital,'' Fortescue said in a statement after market close today. Valin chairman Li Xiaowei will be offered a seat on Fortescue's board, conditional on the Chinese company's equity interest being at least 10 per cent. Mr Li said the agreement was important to support Fortescue's production expansion from 55 million tonnes per annum (Mtpa) to 120 Mtpa. The miner's production capacity is currently 32 Mtpa. "Valin is pleased to provide Fortescue with the capital necessary to underpin the development of Fortescue's impressive project

pipeline, which will create new jobs and accelerate the growth of a world-class mining company,'' Mr Li said. Fortescue chief executive Andrew Forrest said the cornerstone Chinese equity partner ``should facilitate enhanced access to China's financial sector''. Valin has also agreed to buy more iron ore from Fortescue. The share subscription is conditional on approval from Australian and Chinese regulators. It is also conditional on approval from ASX Ltd that it will grant official quotation to the 225 million new shares. "All approvals should be received by the end of March,'' Fortescue said. Fortescue said the standstill agreement was ``in consideration of the sensitivities around foreign investment in Australian domiciled companies''. Mr Forrest, who owns 35 per cent of Fortescue, said in August last year that the miner would remain Australian controlled. Fortescue entered a ``strategic cooperative alliance'' with Hunan Valin, which is owned by the Hunan provincial government and associated with the world's largest steelmaker ArcelorMittal, in late 2008. Fortescue did not provide further details on talks with sovereign wealth fund China Investment Corp regarding a hybrid security raising, reported to be for more than $1 billion, to fund its expansion program. It also did not mention the status of talks with multinational resources giant Anglo American plc after last week confirming it was in talks with the company. Subscribe to our Email Newsletter Share this article What is this? Copyright 2009 The Sunday Times. All times AWDT (GMT + 9) .