Rio may issue $7.2 billion bonds to existing shareholders

Rio Tinto might replace a $7.2-billion convertible bond sale to Chinalco with a capital raising to existing shareholders, says a newspaper report, adding that Rio Tinto is talking with institutional shareholders in the UK and Australia about the possibility of a capital raising.

The Chinese aluminium giant is prepared to underwrite the issue, and scrap a contractual claim to 30 per cent 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 Sydney Morning Herald newspaper said.

Under the agreement signed in February, the Chinese-owned company would pay $12.3 billion for stakes in Rio's iron ore, copper and aluminium assets, as well as $7.2 billion for convertible bonds that would double its equity interest to 18 per cent. (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent).

The paper says Rio Tinto has told Chinalco that the changes were planned because of shareholders unwillingness to support the deal.

Separately, The Australian Financial Review reports that Rio Tinto, BHP Billiton and Brazilian resources giant Vale are believed to be negotiating with Japan's Nippon Steel and South Korea's POSCO on iron ore prices in Seoul this week.
However, the opposition is still not convinced of the proposed changes in the deal.(See: Chinalco-Rio Tinto deal fuels political storm).

''The changes don't remove concerns that an arm of China's communist party will still be getting too much control of Rio, which has a third of its assets in Australia,'' said senator Barnaby Joyce.