Baosteel, China’s leading steelmaker, is threatening to gatecrash BHP Billiton’s £52 billion takeover of Rio Tinto yesterday as speculation rose that investment bankers in London were working on a rival Chinese bid.

Shares of the dual-listed Rio jumped in Sydney and London after Xu Lei-jiang, the chairman of Baosteel, said that he was considering entering the battle for the miner to ensure a well-priced supply of iron ore for the world’s biggest steelmaking industry. The shares were the biggest gainer on the FTSE 100, closing up 1.3 per cent at £55.15.

Mr Xu told the 21st Century Business Herald newspaper: “We are considering [a bid]. The possibility of a takeover plan going ahead is very big.” As for the price of a possible deal, he replied: “$200 billion [£97 billion] is probably not enough.”

His comments were the first open confirmation that the domestic industry is considering entering the ring after BHP, the world’s biggest mining company, started the ball rolling with an approach to Rio last month that was promptly rejected.

Steelmakers in China, Japan and Europe have protested against BHP’s bid, contending that a takeover would give it too much influence over global iron ore supplies and pricing. Marius Kloppers, BHP’s chief executive, has toured China, South Korea and Japan in an attempt to garner support from the region’s steelmakers. Mr Kloppers said that the company had received alternative proposals, including from the Chinese, but that the group was, at present, “listening but not engaging”.

It is unlikely that Baosteel, which is almost entirely reliant on imports of iron ore, largely from Australia, could foot such a huge bill on its own.

Baoshan Iron and Steel Co, Baosteel’s listed unit, which accounts for more than 75 per cent of the parent company’s output, has a market value of only $35 billion. Any bid would almost certainly proceed only with the backing of the Chinese Government and the inclusion of other Chinese steelmakers.

China’s newly established sovereign wealth fund has denied that it is talking to other steelmakers about a possible joint bid. Similarly, the Chinese Development Bank denied that it was trying to build a stake in Rio after acquiring a 0.5 per cent holding.

Analysts and bankers believe that the most likely option is for a Chinese steelmaker to take a blocking stake in Rio, either alone or with a rival domestic producer or the Government.

A Rio shareholder said: “Most people expect the Chinese to take a blocking stake because they have no expertise to make a full bid on their own.”

However, City sources yesterday cited growing speculation that London-based bankers were working on a rival bid, possibly from Baosteel.

Goldman Sachs, Citigroup, Morgan Stanley, Credit Suisse and Rothschild are involved in the takeover saga already, leaving only a short number of large banks that would be available to work on a rival bid.

In rejecting BHP’s overtures, Rio Tinto outlined its own blueprint for growth through aggressive iron ore expansions, new copper and nickel developments, increased dividends and asset sales. Sources said that BHP was continuing to talk to shareholders in an attempt to get them to push Rio into a dialogue.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts