Chinalco, Rio Tinto vote to go to wire

INSTITUTIONAL shareholders have warned their votes on Rio Tinto's controversial $US19.5 billion deal with Chinalco hinges on commodity and credit markets.

Equity Trustees' head of private clients Shaun Manuell said the fund manager would likely wait until the last moment before deciding how to cast its ballot on the transaction.

"We're entering our lockdown period now, where we're mulling over the decision," he told BusinessDaily.

"We said at the start that it didn't look appealing. We always recognised that if the economy sank further and metal prices stayed low, it wouldn't look too bad, but if there was a recovery in metal prices and equities - which has happened, really - there was always the option to walk away and tell the company to renegotiate.

"Also, there's a lot more material that has to be released so we can properly assess the value of the deal."

Under the proposal, Chinalco would be able to raise its stake in the Rio group from 9 per cent to 18 per cent through the purchase of $US7.2 billion in convertible notes. The deal would also hand Chinalco minority stakes in a swathe of Rio's key iron ore, copper and aluminium assets.

In return, Rio would receive a much-needed financial lifeline to help repay its huge $US38.7 billion debts from the acquisition of Canadian aluminium giant Alcan in 2007.

The agreement, however, has looked less attractive in recent months as commodity prices bounce back from recent lows and global credit markets show signs of thawing.

Rio shareholders, who will vote on the Chinalco deal mid-year, were vocal in their opposition to the transaction at the dual-listed miner's annual meetings held in London and Sydney over the past week.

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