Chinalco wins right to raise stake in Rio Tinto

The Aluminium Corporation of Chin has won the right to boost its stake in Rio Tinto, potentially enhancing its ability to disrupt BHP Billiton’s $127bn hostile bid for its rival miner. Wayne Swan, Australia’s Federal Treasurer, said on Sunday that he would permit Chinalco, China’s big­gest aluminium producer, to buy up to 14.99 per cent of Rio Tinto’s London-listed shares. That would equate to an 11 per cent stake in the mining company’s combined Australian and London equities. The move by Chinalco is not regarded as a blocking stake to BHP Billiton’s bid for Rio Tinto. However, in February when the state-owned Chinalco joined forces with Alcoa, the US metals group, to buy a 9 per cent stake in Rio Tinto, it sparked speculation that Chinalco had been encouraged to do so by Beijing to block BHP Billiton’s deal plans, because of concerns about competition and pricing. Mr Swan said that he had no objections to Chinalco increasing its stake under Australia’s foreign investment rules – on condition that Chinalco did not do so without first receiving fresh government approval. Chinalco has also promised not to seek board representation as long as its holding in the world’s third-largest miner remains below 15 per cent. The Australian Treasurer’s approval comes ahead of Rio’s interim results on Tuesday when the miner is expected to reiterate its determination to remain independent. “I have determined that the undertakings agreed with Chinalco are acceptable for protecting the national interest in this matter,” Mr Swan said in a statement. “While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership.’’ After Chinalco and Alcoa bought the stock in February they retrospectively made a “voluntary submission” to Australia’s Foreign Investment Review Board (FIRB). This was seen as a diplomatic move after Mr Swan released previously unpublished foreign investment guidelines which determined that all proposed investments by foreign government owned entities in Australia-listed companies required treasury approval. Mr Swan stressed again last month that the government was more closely examining Chinese bids for Australian miners. In response to criticism that the government had changed its policy and had adopted a more restrictive stance, Mr Swan said that the requirement by foreign state-run entities to notify the treasury before making a significant investment was not new. He said it was a long-standing feature of Australia’s foreign investment policy that had been kept in place by successive governments. “While the FIRB plays an important advisory role, determining whether a proposal is consistent with the national interest is ultimately a matter for the Treasurer,” Mr Swan said in February. The Australian Competition and Consumer Commission (ACCC) approved the Chinalco investment in February. Source: The Financial Times Limited 2008