A year ago this week Chinese aluminium group, Chinalco, along with its former US partner, Alcoa, raided the London-listed shares of Rio Tinto to snatch a 14% stake in the UK listed shares of the company and 9% overall, including the Australian listed securities.
It was an audacious, but very expensive attempt to become a player in BHP Billiton’s hostile assault on Rio that eventually foundered amid the debt crunch and commodities slump in the closing months of last year.
The $US14 billion cost is now down 70%, but that hasn’t stopped Chinalco from being receptive to approaches from the embattled Rio management and board for financial help.
According to unusually precise reading reports in major London newspapers, Rio Tinto has gone cap in hand to the Chinese government looking for a bailout rather than ask its shareholders for cash in a rights issue.
Reports found in The Times and The Telegraph, suggest Rio is looking for between $US9 billion (The Times) and $US 15 billion (Telegraph)
The Times reported:
"Rio Tinto is in talks to raise up to $9 billion (£6.1 billion) from Chinalco, the state-owned Chinese aluminium giant.
"The investment, if successful, will mark one of China’s biggest strategic overseas investments outside the financial sector.
“It would also demonstrate the country’s financial muscle at a time when the western world is at its most vulnerable.
"The capital injection is intended to address growing concerns in the market about Rio’s ballooning debt.
“While there is no certainty the Chinalco talks will be successful, it is hoped they will be completed by the time Rio announces its year-end results on February 12.
"The plan is for Chinalco to buy minority stakes in some of Rio’s most valuable mining assets. The Chinese company is also in discussions to increase its shareholding in Rio from 11% to at least 15%. This could be done through a share placing that could raise about $1 billion."
And the Telegraph reported:
"The dual-listed Anglo-Australian mining group has drawn up complex plans that include a direct investment from Chinalco, the state-owned metals producer, as well as issuing a large convertible bond to either the Chinese company or another entity.
"Under the plans, which are being considered by Rio Tinto’s board but have yet to be signed-off by Beijing, Chinalco will increase its stake in the London-listed arm of Rio by about 6pc to 18pc, while simultaneously buying up to 14pc of the company’s Australian-listed shares.
"Rio is also in talks to sell direct stakes in some of its assets, such as specific mines and supply contracts, to the Chinese.
“The size of the convertible bond has not been finalised but it is expected that the total size of the Chinese capital injection will be in the region of $15bn (£10.3bn), and could be higher.
"Contingency plans for a rights issue, which are being overseen by JP Morgan Cazenove, have also been drawn up if the talks with the Chinese fail. .
"If the Chinese give their approval to the deal, Rio Tinto hopes to announce the capital-raising with its results on February 12th. Rio is also planning to sell part of its stake in Escondida, the world’s biggest copper mine, in Chile.
“Experts said Rio Tinto’s stake in the mine could be worth as much as $6bn (£4.1bn). Rio Tinto has been in talks to sell its packaging arm, which is estimated by analysts to be worth more than $3bn (£2.1bn), for several months. Amcor, the American packaging giant, is understood to have engaged UBS, the investment bank, to advise it on a bid."
The reports, all sources from London, confirm once again that transparency and fair and timely disclosure is not being practised by groups close to Rio.
It’s usually the investment bankers or brokers involved operating through high-priced London PR executives that do the spinning of the storylines to the business media.
Strategising is what some call it, leaking like a sieve is a better way of describing the way of softening up the market and the Australian government, which will have to sign off on any move by Chinalco to boost its stake.
In August of last year, Federal Treasurer, Wayne Swan approved Chinalco’s move to acquire up to almost 15% of Rio’s London listed shares, or around 11% of the overall company.
In a statement, Mr Swan said he was raising no objections on the basis that Chinalco had undertaken to seek Government approval for any larger investment and not to pursue a seat on the Rio Tinto board.
Friday saw Rio reveal the sale of assets in Argentina, Brazil and Paraguay for $US1.6 billion to Vale, its Brazilian iron ore rival.
The prices were thought to have been at the top end of value, but Rio shares fell in London to close at 15.06 pounds. Rio shares closed up $1.44 in Australia on Friday at $42.15. The reaction was positive to the Vale deal.
Chinalco paid 60 pounds a share, so its losses are huge.
But it is a Chinese government company, so it has access to money to do a deal with Rio. But it must be approved by the Chinese government.
Rio was also forced to admit that it was considering a rights issue by the Australian Stock Exchange.
It is looking for ways to cut costs and raise new c
