Rio Shares Drop After $7.6 Billion Share Sale Report (Update5)

May 13 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, fell in Sydney and London trading after the Telegraph reported it may drop an investment deal with Aluminum Corp. of China for a 5 billion-pound ($7.6 billion) share sale. Rio slid A$3.23, or 4.7 percent, to close at A$65.25 on the Australian stock exchange. The slump was the biggest since April 21. In London, Rio closed 298 pence, or 11 percent, lower at 2,503 pence, the biggest daily decline since April 6. Rio may have drawn up plans for a rights offer to be underwritten by JPMorgan Cazenove Ltd. and Credit Suisse Group AG, the Telegraph newspaper in London reported on its Web site, without citing anyone. The $19.5 billion deal with Chinalco, as the state-owned Chinese company is known, is “teetering on failure,” Citigroup Inc. said in a report this week. “Our view is that Rio management remain committed to the Chinalco deal until it gets taken away from them,” Dominic O’Kane, an analyst with Liberum Capital Ltd. in London, wrote in a research note today. “This is not new news, as the contingency rights issue has been there since February.” Last month, Liberum assessed the probability of Chinalco completing the investment, which includes a bond sale as well as buying stakes in some Rio mines, at less than 50 percent. Rio would consider selling shares, bonds, assets, rescheduling its debt or a combination of the four should the deal fail, Chief Financial Officer Guy Elliott has said. ‘Strategic Options’ “We do not comment on market rumor and speculation,” Rio’s Melbourne-based spokeswoman Amanda Buckley said today by phone. She referred Bloomberg to a statement on Feb. 12 stating “the Rio Tinto boards have extensively considered a range of strategic options” and decided the Chinalco proposal was superior. Rio might raise up to $15 billion from a sale of stock to current shareholders because of global demand for equity issues, Citigroup analysts led by Clarke Wilkins said in a May 11 report.