Investor anger exposes Chinalco deal

Rio Tinto's planned $US19.5 billion ($A26.8 billion) deal with Aluminum Corporation
of China (Chinalco) is coming under increased scrutiny following investor anger in
London.
The deal, which would see Chinese government-owned Chinalco take their stake in Rio
Tinto to 18 per cent, is yet to be approved by Australian, US or Chinese regulators,
or shareholders.
But the Chinalco investment, which would help Rio Tinto pay down some of its massive
$US40 billion ($A54.98 billion) debt, sparked anger in the UK overnight.
Investors at Rio's annual general meeting in London were concerned the Chinese
company will exert too much influence if it is allowed to take an 18 per cent
interest in Rio and a suite of its mining assets.
Some also said the rights of existing shareholders to take up new convertible bonds
appeared to have been ignored and the terms offered to Chinalco were overly
generous.
On Thursday, the Australian Shareholders' Association (ASA) Duncan Seddon said they
were also unhappy about the some aspects of the Chinalco deal.
"We see this as a problem of them (Rio Tinto) selling Australian tier-one assets
essentially to a foreign power without really recourse to the shareholders," Mr
Seddon said.
"We will be in the position where a London company sells Australian assets to a
foreign country."
He said the ASA also opposed allowing Chinalco to appoint to the Rio Tinto board two
board members who could not easily be sacked.
Mr Seddon said any vote of shareholders should be undertaken separately in Australia
and the UK, to avoid local shareholders being swamped by the London majority.
Despite the anger in London, Rio chairman Paul Skinner told the meeting the company
remained firmly committed to the deal.
On Thursday, Warren Edney, an Australian analyst with ABN Amro, said Rio may be
being "bloody-minded" in seeking to push ahead with the Chinalco deal.
"I believe that they could have gone through this year, sold some more assets and
potentially refinanced debt and paid-off issues debt without doing the Chinalco
transaction," he said.
His comments came as a Goldman Sachs JBWere commentary recommended investors sell
Rio Tinto stocks if the Chinalco deal proceeds as put forward.
"Growth would be negative due to the sale and, looking forward, any growth would be
reliant on debt funding, which would probably be supplied by the Chinese," the
report said.
The analysis also recommended selling Rio shares if the Chinalco deal did not
go-ahead, because the company need to take further action to meet its financing
obligations due next year.
But a Citigroup report was more upbeat, saying a recent $US3.5 ($A4.81) billion debt
issue showed there were options available for Rio Tinto to handle its debt should
the Chinalco deal fall through.
It said partnering with the Chinese company could also give Rio access to cheap debt
funding, a benefit in securing future market share in China and potential for
exploration in China.
Rio Tinto stocks traded up 70 cents in Australia on Thursday at $58.05.