TV ads to add to pressure on Chinalco-Rio deal
Australian politicians turned up the heat against Rio Tinto Ltd/Plc’s planned $19.5 billion tie-up with China’s Chinalco, with one taking out television ads on Tuesday to push for the deal to be blocked.
A source close to the transaction said, meanwhile, that legal advice favored a simple majority vote of Australian and UK shareholders to back the deal, amid media reports the company was considering requiring 75 percent support in any vote.
Rio shares in London fell 4.1 percent to 2,015 pence by 0840 GMT, underperforming a 2.7 percent decline in the UK mining index .FTNMX1770 as copper prices slipped.
So far this year, Rio’s London shares have outperformed the mining index by 30 percent.
The deal, designed to help Rio cut its $39 billion debt burden, has aroused political concerns about key Australian assets falling into the hands of China and sparked protests from investors who say the deal favors one shareholder over others.
“The Australian government would never be allowed to buy a mine in China. So why would we allow the Chinese government to buy and control a key strategic asset in our country. Stop the Rudd government from selling Australia,” Senator Barnaby Joyce said in TV ads airing this week in Canberra and his home state of Queensland, where Chinalco will pick up some asset stakes.
Under the deal, state-owned Chinalco would pay $12.3 billion for stakes in iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent credit reports.
Australia’s treasurer needs to approve the deal on national interest grounds, after which Rio Tinto plans to put the deal to a shareholder vote in an ordinary resolution that would need support from a simple majority for the deal to go ahead.
However, some UK shareholders have said given the scope of the proposal, which would give Chinalco two seats on the board and joint venture rights on key assets, Rio should put up a special resolution, which would require 75 percent support.
Britain’s Daily Telegraph newspaper reported that Rio Tinto was considering whether to raise the approval threshold to 75 percent. The company declined to comment.
The source close to the transaction said legal advice backed a 50 percent threshold.
“We’ve got a strong legal opinion that this is an ordinary resolution, not a special resolution,” the source said.
Rio Tinto warned in its annual report, released on Tuesday, that if the Chinalco deal was not approved and it failed to complete other planned asset sales, it might have to renegotiate its $40 billion in credit facilities “on more onerous terms.”
NOISE IN CANBERRA
Australia’s Foreign Investment Review Board, which advises Treasurer Wayne Swan, on Monday extended its review of the complex deal for up to 90 days, moving the deadline to June.
Filed under: finance by Fred