Chinalco in a fix on Rio Tinto's share issue

19 June 2009

After being stumped out of its biggest-ever overseas investment, when its elaborate proposal for a $19.5-billion investment in Rio for an 18-per cent stake and two board seats fell apart this month, Chinalco is now in a dilemma over whether to participate or or not in the world's fifth largest and Australia's biggest ever rights issue.

Chinese state-owned giant Chinalco, the single largest shareholder in the Anglo-Australian miner Rio Tinto, is reported to have registered for Rio Tinto's $15.2-billion rights issue, but is yet to make up its mind as to whether to increase its 9.3-per cent stake or sit tight and see its stake being diluted.

On 4 June, the worlds third-largest mining company, Rio Tinto ended a highly controversial  five-month investment bid by Chinalco, terminating the Chinese resources company's bid, in favour of a rights issue and a 50:50 joint venture with arch rival BHP Billiton to develop Western Australian iron ore mines. (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issue)

With 15 June being the deadline for registering for the issue, Chinalco is reported to have completed the registration process for the issue, which was launched on 17 June and lasts until the end of the month.

The rights issue of the dual-listed company is for 21 new shares of Rio Tinto Plc  for every 40 existing shares at 1,400 pence each per share, aiming to raise approximately $11.8 billion in the UK and A$28.29 for Rio Tinto Ltd shares worth $3.4 billion in Australia, totally approximately $15.2 billion. Moreover, these shares carry voting shares.

According to the prospectus, Chinalco has to make up its mind whether to participate in the rights issue before 5:00pm on 1 July, as the new shares will be transacted on the stock exchanges from 2 July.