Some Rio Tinto shareholders have long questioned the economic logic of the company taking a $19.5 billion investment from Chinalco, saying existing investors could raise the money through a rights issue. Now it appears they have the upper hand. Reports from London say that the Rio board is expected shortly to announce that it has withdrawn its support for the deal.
That might spare the generally pro-Beijing Australian government a potentially awkward decision on whether to veto the deal on national interest grounds (the Foreign Investment Review Board was due to rule on June 15th), and strike at least one item from the list of hot button issues with Beijing right now that spans maritime rights to Gitmo Uighurs.
A rising share price and easing debt markets have made a rights issue more feasible for Rio, which now plans to raise $15 billion that way to pay off debt, rather than take Chinalco’s convertible bond. But the state-owned aluminum giant is going to want a break-up fee for being jilted; $195 million is the number being bandied about.
The collapse of what would have been the largest Chinese foreign investment also reopens the door for Rio to some sort of tie up with BHP Billiton. Chinalco’s options look more limited.