Rio Tinto dives on fears of China backflip

RIO Tinto shares suffered their biggest fall in three weeks yesterday on increasing speculation the company is considering a rights issue to replace its $US19.5 billion Chinalco rescue package.

Media reports in London overnight suggested Rio was about to pull the trigger on a pound stg. 5 billion rights issue.

The speculation comes as billions of dollars are being raised on stock markets here and in the UK, making Rio's deal with Chinese aluminium giant Chinalco, which was struck amid frozen credit and equity markets, less appealing.

It also comes as Rio chairman Jan du Plessis meets disgruntled London investors, who are insisting they should be part of any capital raising.

Citigroup this week said a recent "avalanche" of rights issues in the UK, and the fact Rio's shares here and in Britain had risen above the strike price of the first tranche of Chinalco's convertible bond issue, meant calls for a rights issue would gain momentum.

London's Daily Telegraph newspaper said Rio might have drawn up plans for a rights issue to be underwritten by JPMorgan Cazenove and Credit Suisse Group.

Rio shares closed $3.23, or 4.7 per cent lower at $65.25 yesterday, their biggest percentage fall in three weeks.

It was the stock's third straight fall, but still leaves shares above the $US45 strike price of the first tranche of the $US7.2 billion of convertible bonds to be sold to Chinalco.

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