Rio shareholder calls for Chinalco deal changes

Reuters | Thu, 21 May 2009 07:01
[miningmx.com] -- A top Australian shareholder in Rio Tinto called for changes to the miner's planned $19.5 billion tie-up with Chinalco, as a newspaper reported on Thursday that Chinalco will restructure the deal.

The deal, which would give Chinalco stakes in some Rio mining assets as well as convertible notes to double its equity stake to 18 percent, has sparked concerns in Australia about China's ability to influence pricing of strategic commodities.

Several UK shareholders in Rio have also voiced opposition, saying that the convertible note issue favours Chinalco at their expense, and have pushed alternative plans that include a rights issue and a tie-up with rival BHP Billiton.

"They can revise and should revise the whole cocktail of it," said Paul Xiradis, chief executive of Ausbil Dexia, the ninth-largest shareholder in Rio Tinto Ltd, according to Thomson Reuters data.

He said that reflecting shareholders' complaints, the preferred route would be to have a capital raising that allowed all shareholders to participate, and he would prefer if Rio's iron ore assets in Western Australia were kept out of the deal.

Rio said on May 15 it remains committed to the tie-up.

Separately, the Sydney Morning Herald newspaper said on Thursday that Chinalco will restructure the deal to allay Australian government concerns.

Citing sources close to Chinalco, the report from Beijing said the Chinese firm is prepared to replace marketing provisions with a clear undertaking that it will not play any role in setting prices.

Chinalco is also prepared to scrap a contractual claim to 30 percent of Rio's iron ore production but would not concede on its planned stakes in Rio assets or on its right to appoint two directors to the board, the paper said.

The Herald said Chinalco is open to discussing proposals for Rio to issue new convertible bonds to mollify some shareholders who have complained that the issue benefits Chinalco at their expense, provided its interest is not diluted below 15 percent.

Rio Tinto declined to comment, calling the report market rumour and speculation.

A Chinalco spokesman had declined to comment on Wednesday on a previous report that Rio might raise cash with a rights offer underwritten by Chinalco.

"We only have one proposal, no other proposals, Chinalco vice president Lu Youqing said.

The Herald report is the latest in a series speculating on changes to the deal, which Rio lined up to help it pay off half its $38 billion in debt amid the credit crunch and a commodities slump.

The speculation has come as Rio Chairman Jan Du Plessis meets shareholders to discuss the deal.

The Australian Financial Review newspaper said on Thursday that Chinalco subsidiary Chalco has told Australia's Queensland state government that a fall in alumina prices has made the building of a new refinery in the state less likely.

The decision could mean further political challenges for the Chinalco-Rio deal, the paper said.

Australia's Foreign Investment Review Board is expected to make its recommendations on the deal to Treasurer Wayne Swan by June 15. Swan has the final decision on whether to allow the deal.