Wednesday, May 20, 2009

Chinalco May Accept Lower Stake in Rio Tinto, Herald Says

(Bloomberg) -- Aluminum Corp. of China, the nation’s biggest aluminum producer, may take a smaller stake in Rio Tinto Group to win approval for its $19.5 billion investment, the Sydney Morning Herald said, citing people close to the company.

Chinalco is open to letting Rio sell convertible bonds to other shareholders, reducing its planned stake to 15 percent, the Herald said. That may allow the state-owned entity to avoid breaching foreign ownership rules and placate investors concerned at not being offered stock on the same terms.

Rio has agreed to sell $7.2 billion of convertible debt and $12.3 billion worth of stakes in its mines to Chinalco and use the funds to pay debt. The mooted changes don’t remove concerns that an arm of China’s communist government will gain too much control over Rio and its Australian assets, said Senator Barnaby Joyce, who is leading a campaign against the deal.

“There is one thing they want and that is a meaningful interest in the company,” said Ric Ronge, who helps manage the equivalent of $775 million, including Rio shares, at Pengana Capital Ltd. in Melbourne. “Everything will be done to ensure that the deal does go through.”

Rio rose 2.4 percent in Sydney trading to A$66.32 at 11:51 a.m. after gaining 4.3 percent in London yesterday. Under the existing proposal, Chinalco’s stake in Rio Tinto may double to 18 percent should it convert all the debt.

Chinalco Vice President Lu Youqing couldn’t be immediately reached for comment. Rio’s Melbourne-based spokeswoman Amanda Buckley declined to comment.

“We still have the same problem that the resource in situ, in the ground, is owned by another nation’s government,” Senator Joyce today told Bloomberg Television.

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