More frustrations for Rio Tinto as its efforts top convince big shareholders about the Chinalco deal falls on deaf ears.
Shareholders in both London and Australia are starting to find voice in opposition to the $US19.5 billion proposed deal with Chinese group, Chinalco.
The Foreign Investment Review Board had delayed any decision on the proposal by at least three more months and yesterday the biggest Australian shareholder in Rio broke cover to reveal its opposition and deep "concern" to the proposed link up with Chinalco, the Chinese government-owned aluminium group.
Chinalco plans a $US19.5 billion cash injection into Rio to enable Rio to retire debt this year. That debt was taken on in the high priced acquisition of Alcan for $US38 billion midway through 2007.
The deal will boost Chinalco’s holding around 18% in the overall group and it will also be taking minority stakes in some of its best assets, including the WA iron ore operations of Hamersley and the Weipa bauxite operations in Queensland, as well as the huge Escondida copper project in Chile.
In a presentation to the ASX yesterday the very well connected Melbourne-based listed investment company; Australian Foundation, revealed its strong reservations to the projected deal.
Australian Foundation is linked to the Goldman Sachs JBWere investment bank by way of history: chairman Bruce Teele and fellow board member Terry Campbell were the powerhouses behind the rise of Were and the deal with Goldman Sachs. BHP Billiton chairman, Don Argus is a director as well.
AFI said it was "deeply concerned’ at the proposed deal between Rio and Chinalco.
"We are assessing the proposal from the perspective of being a long term investor," AFI said. "Existing shareholders have not been given the opportunity to recapitalise the Company- preference given to one shareholder.
"Significant influence has been given to Chinalco with no premium paid.
"We are deeply concerned about Chinalco becoming involved with the running of the business: sovereign government/customer/competitor 2 seats on the parent board corporate governance issues integrated into decision making process and information flows potential conflicts of interest over investment decisions.
“We let the Company know our views and are seeking a response."
It is as comprehensive bucketing of the proposal as it now stands as anyone has delivered.
Apart from a couple of London based institutions, led by Legal and General, other shareholders in Rio have been reluctant to go public.
There were reports in the London Observer yesterday suggesting that UK holders opposed to the deal are seeking a possible legal block.
UK Fund manager Legal General, the biggest shareholder in the London–based shares of Rio, is already on the record as opposing the deal for many of the reasons advanced yesterday by AFI.
Legal and General says it had talks with Rio on Friday and put its case for a deal. It wants existing shareholders to have pre-emptive rights for any fund raising.
Some big UK shareholders seem to be arguing that Rio will need a higher level of approval for any shareholder OK: instead of a simple majority, they argue that a 75% level of approval might be needed.
Of course, if Rio offers them some cheap shares or a special issue, then their opposition might vanish.
AFI is said to be the largest Australian shareholder in both the Australian and London quoted shares.
And then the FIRB delay was revealed late yesterday morning.
Rio shares fell more than $1.20 to around $5.72 after opening flat at $52.02.
