Rio rights issue expected as Chinalco deal falters

4th Jun 2009 15:10

Miner Rio Tinto is rumoured to be mulling a $15bn rights issue as the refinancing deal with Chinese state-owned aluminium firm Chinalco is standing on the brink of collapse."Rio Tinto notes press speculation. Rio Tinto is pursuing a range of options, some of which are at an advanced stage, for maximising shareholder value and improving the Group's capital structure," said Rio.The comments mark a major shift for Rio, which only last month stated it remained "committed" to the deal.The Australian newspaper today reported that Rio has notified Chinalco that it wants to pull out of the deal, which would have seen Chinalco invest $19.5bn in return for a large chunk of shares. Rio shares tumbled on fears that the Anglo-America miner is preparing to launch a rights issue instead.The Telegraph reported that top institutional investors would support a $15bn rights issue if Rio scraps its plans to sell the 18% stake."Investor demand is huge. The company could raise as much as it wants. This wasn't possible as recently as a couple of months ago, it is now," the paper quoted one insider as saying.Meanwhile, the FT suggested Rio could create a joint venture with rival BHP Billiton, the company that last year abandoned a bid for Rio.The paper also said that it is Chinalco that has decided to walk away from the deal after it could not reach agreement about $7.2bn convertible bond that was a key part of the deal.Rio shareholders have been unhappy with the Chinalco deal from the start as they felt it would not given them an opportunity to keep their shareholding, which would have been heavily diluted. The miner struck the deal in a bid to reduce its debt pile, which has risen sharply after the acquisition of Alcan.