Documents filed with the Federal Court said that a Chinese government owned steel mill threatened to stop buying iron sands from one of BlueScope's subsidiaries in the lead up to the sale of the business unless it was given the right to purchase it.

The threat was made by Chengde Iron & Steel before the sale of BlueScope's Taharoa mine, which was being negotiated for BlueScope by the investment bank Merrill Lynch.

Chengde withdrew its business shortly after the mine was sold to the Hong Kong listed Cheung Kong Infrastructure. CKI is now suing both Merrill Lynch and BlueScope for misleading and deceptive conduct and is seeking damages that could include the USD 190 million purchase price.

Merrill Lynch said that BlueScope advised the bank that the threat by Chengde was just a tactic from a difficult negotiator. It did not alert other bidders that they may lose 50% of their revenue through the loss of the mine's major client.

In its defense filed with the Federal Court in Sydney, Merrill Lynch said that it was advised by BlueScope that Chengde had expressed interest in buying the New Zealand mine and threatened to cease buying iron sands if the Taharoa Iron Sands Business was sold to anyone else.

Merrill Lynch said that it was told by BlueScope that "Chengde's real concern, as a state owned Chinese steel mill, was that a privately owned Chinese steel mill might purchase the TISB because Chengde had a philosophical problem purchasing raw materials from a privately owned Chinese competitor. Chengde had demonstrated, in numerous prior off take negotiations, that it was a difficult negotiator and was willing to utilize all available points of commercial leverage to advance its own objectives."

Merrill Lynch said that BlueScope also said that if a privately-owned Chinese steel mill purchased the business, that buyer would not be concerned about Chengde ceasing to be a customer because that purchaser would want the flexibility of being able to apply the mine's output in a manner best suiting its needs.

Merrill Lynch denies it engaged in misleading or deceptive conduct. It says although it was acting for BlueScope, any decisions to disclose information or defer or call off the bid process were decisions for BlueScope. It says CKI was a sophisticated investor being guided by its own legal and financial advisers and that Chengde later stated its decision to cancel shipments was due to the global financial crisis.

The deal collapsed in late 2008 when CKI failed to win approval for its purchase from New Zealand authorities. BlueScope's subsidiary New Zealand Steel accused it of not trying hard enough, and the matter went to a confidential arbitration.

BlueScope is yet to lodge a defense, but disputes the allegations against it.

(Sourced from www.smh.com.au)