Global miner Rio Tinto may replace the $7.2 billion convertible bond part of its tie-up plan with Chinalco with a capital raising underwritten by the Chinese firm, the Australian newspaper said on Wednesday. Without citing sources, the paper said Rio is believed to have told state-owned Chinalco that talks with Rio shareholders have brought demands for changes to the planned $19.5 billion tie-up.
The report is the latest in a series saying that Rio may be considering changes to the Chinalco deal. The speculation has come as Rio Chairman Jan Du Plessis meets shareholders to discuss the deal, which was designed to help Rio pay down half its $38 billion in debt. "We do not comment on market rumour or speculation," Rio Tinto spokeswoman Amanda Buckley said.
Chinalco has not indicated that it is happy to compromise on the deal, but is thought to be resigned to changing the terms of the bonds but does not want any change to the part of the deal that gives it stakes in Rio mining assets, the paper said.
Major UK-based investors in Rio have demanded that it scrap a deal with Chinalco and actively pursue a new capital raising or a sale of assets to rival BHP Billiton Ltd/Plc. Analysts and fund managers have said Rio would have to be looking at a range of alternatives, given that equity, debt and commodity markets have improved since Rio agreed the deal with Chinalco, so other funding alternatives might be more attractive.
But Rio Tinto has been touting the benefits of the tie-up, including the access it will have to cheap financing and resources in China. "If it did go another funding route, you'd think having built that relationship with Chinalco, nothing was done to damage that over the longer term.
It wouldn't look very good, even though it might appease a few UK investors," said Peter Chilton, an analyst with Constellation Capital Management, which owns shares in Rio. Rio has repeatedly said it remains committed to the tie-up with Chinalco. Its shares edged up 0.3 percent to A$63.94 on Wednesday in a flat broader market.
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