Rio’s Possible Chinalco Share Sale May Be Blocked, UBS Says

Feb. 10 (Bloomberg) -- Rio Tinto Group, seeking to reduce its debt by $10 billion this year, may have a possible stock sale to its biggest shareholder, Aluminum Corp. of China, blocked by the Australian government, UBS AG said. “A placement to Chinalco may pose regulatory hurdles from the Australian government, which may limit ownership under the Foreign Investment Review Board regime to 15 percent,” analysts led by Glyn Lawcock said in a report. State-owned Aluminum Corp., or Chinalco, last year acquired a 9 percent stake in Rio. Rio’s Chairman-elect Jim Leng quit yesterday, less than a month after being named, citing a “difference of opinion” for debt repayment. He had clashed with Chief Executive Officer Tom Albanese over plans to sell more stock to Chinalco to cut Rio’s $38.9 billion of debt, according to the Financial Times. “Clearly the unexpected and early departure of the newly- appointed Chairman is a concern,” Lawcock said in the report yesterday. “A private placement may be the worst outcome and would be viewed poorly by the market, given it assigns preferential opportunities for certain shareholders to build stock.” Chinalco got approval in August to raise its stake in London- based Rio to 11 percent after federal Treasurer Wayne Swan said he had no objections. Still, he said the Chinese company would have to reapply to increase its stake beyond the approved level, adding the government would “carefully examine national interest issues where these arise in relation to foreign sovereign ownership.” About one third of Rio’s assets are in Australia. Under the 15 percent Chinalco stake cap, Rio could raise $2.4 billion by selling shares at a premium, UBS’s Lawcock said. Rio could also raise more than $5 billion from the sale of shares at a discount to existing holders. It could sell stakes in assets such as the Gove alumina refinery and Coal & Allied Coal Industries Ltd. in Australia, and the Escondida copper mine in Chile, he said. To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net