Chinalco expected to take up Rio rights

Chinalco, Rio Tinto’s biggest shareholder, is widely expected to take up its full entitlement on Wednesday to new shares in the mining group’s $15.2bn (?.2bn) capital raising.

Wednesday’s deadline will bring an end to lingering uncertainty over Chinalco’s intentions, which has persisted since the beginning of the month, when Rio’s board turned its back on a $19.5bn capital injection from Chinalco that would have increased the Chinese group’s stake to close to 19 per cent.

The dual-listed mining group instead opted to raise $15.2bn from existing shareholders and sign an iron ore joint venture with BHP Billiton.

The move followed intense pressure from its UK and Australian investors, who did not want to see China’s state aluminium producer gain significant influence and board seats, while also being one of Rio’s biggest customers.

Chinalco has repeatedly insisted it “will continue to explore opportunities to advance its strategic objectives and in the meantime will monitor developments at Rio Tinto as the company’s current largest single shareholder?

However, Rio Tinto’s UK shares dropped nearly a fifth recently over fears that Chinalco would not take up its rights, which would then have to be placed in the market.

If Chinalco did decide to place its rights in the market, its 12 per cent stake in the UK-listed shares would fall by a third as would its 9 per cent holding in the entire group.

Rio is offering investors 21 shares for every 40 they hold at ?4 a share.

The offer is one of the largest rights issues on record.

In recent years, the only larger issues have all come from banking groups such as Royal Bank of Scotland, HSBC and Fortis.

Chinalco has not yet given an indication of whether it will take up its rights. But if Chinalco does take up its full rights, the average cost of its investment is about ?4 a share.

The 50-50 joint venture with BHP, which the companies claim will generate more than $10bn of savings, has attracted opposition from the Chinese government, which is concerned about its impact on the Chinese steel industry.

Earlier this month Chen Yanhai, head of the raw material department of China’s ministry of industry and information technology, told state media that the venture “has an obvious colour of monopoly? BHP and Rio are the world’s second and third-biggest producers of iron ore, which is a key ingredient in steel.

Rio’s shares closed up 4.5 per cent on Tuesday night at ?1.53.

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