Rio Tinto may not tango with Chinalco

14 May 2009

There is widespread speculation that debt ridden Rio Tinto will not  tango with Chinalco and may go in for a new capital raising or sell some its assets to rival BHP Billiton in view of the global economic scenario has changed from February, when Chinalco made the $19.5 billion offer. (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent)

Major investors from the UK in Rio Tinto have, in a fresh round, vented their anger on the miner's new Chairman, Jan du Plesis, in London this week, demanding that the dual-listed company abandon its deal with Chinlaco and raise new capital, as well as start talks with BHP Billiton for certain asset sale.

In February, China's state-owned Aluminium Corporation of China (Chinalco) announced that it would invest $19.5 billion into troubled mining giant Rio Tinto by taking stakes in mining assets as well as bonds convertible to Rio shares, which could eventually raise its overall stake in Rio from the present 9 per cent to 18 per cent.

Apart from doubling its stake to 18 per cent in Rio Tinto, the deal would also give Chinalco two seats on the Rio board and stakes in the aluminium, bauxite, copper and iron ore projects of Rio.

Rio has almost $38 billion of debt after the overpriced acquisition of aluminium producer Alcan, with $20 billion repayable by the end of 2010. Rio says it wanted a deal that would fix its balance sheet for the next two years, and that if it had opted for the rights issue, and if the global economy downturn continued, it may not have been able to sell enough assets to satisfy debt repayment obligations.

With just four weeks to go for Australia's Foreign Investment Review Board (FIRB) to give a decision on China's biggest-ever overseas investment, the short honeymoon between China's state-run company and the world's third largest miner, is looking more and more doomed to end up in divorce with arch rival BHP Billiton waiting to step in.