Chinalco to participate in Rio Tinto's rights issue
30 June 2009
China state-owned Chinalco has decided to participate in the $15.2-billion rights issue of Anglo Australian miner Rio Tinto, after being stumped out of its biggest-ever overseas investment, when its elaborate $19.5-billion investment proposal for an 18-per cent stake and two board seats in Rio fell apart this month. (See: Rio terminates Chinalco deal; to raise $15.2 billion through rights issue)
Not wanting to see its 9.3-per cent stake being diluted had it not participated in the rights issue, Chinalco, the single largest shareholder in the Anglo-Australian miner Rio Tinto, is reported to be buying $1.7 billion of the world's third-biggest mining company's stock.
According to media reports, Agricultural Bank of China and China Development Bank will help fund Chinalco to acquire the stock but did not mention the extent of the credit line being offered to Chinalco.
With 15 June being the deadline for registering for the world's fifth largest and Australia's biggest ever rights issue, Chinalco completed the registration process for the issue, which was launched on 17 June. It has till 5:00 pm on 1 July to make up its mind whether to participate in the rights issue, as the new shares will be transacted on the stock exchanges from 2 July.
The rights issue of the dual-listed Rio 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 for another $3.4 billion in Australia, totalling approximately $15.2 billion. Moreover, these shares carry voting rights.
Chinalco, currently holds 12 per cent of Rio Tinto's London shares which give it a 9.3 per cent of the overall group. Participating in the rights issue would enable Chinalco to maintain its 9.3 per cent overall stake in Rio.
Though still stung at Rio Tinto's termination of the Chinalco deal in favour of a rights issue and joint venture with BHP, China's leaders are reluctant to slam the door shut on the miner and may instead dilute the stake over a period of time, when the commodities market becomes more robust.
By taking part in the rights issue, Chinalco would be able to reduce the average cost of its 9.3 per cent stake it had acquired at the peak of the commodities boom in 2007 in a bid to scuttle BHP Billiton's hostile $147.4 billion takeover of Rio Tinto. (See: BHP Billiton raises offer for Rio Tinto to $147 billion)