Chinalco May Accept Lower Stake in Rio Tinto, Herald Says

May 21 (Bloomberg) -- Aluminum Corp. of China, the nation’s biggest aluminum producer, may accept a lower stake in Rio Tinto Group to win approval for its $19.5 billion investment, the Sydney Morning Herald said, citing people close to the company. Chinalco, as the state-owned entity is known, is open to letting Rio sell convertible bonds to other shareholders, the newspaper said. It would be prepared to accept a stake of 15 percent, the Herald said. That would potentially avoid a breach of foreign ownership limits. Chinalco, already Rio’s largest holder with 9 percent, plans to buy $7.2 billion of convertible debt and $12.3 billion worth of stakes in London-based Rio’s projects. The changes don’t remove concerns that an arm of China’s communist party will still be getting too much control of Rio, which has a third of its assets in Australia, said opposition Senator Barnaby Joyce, who is leading a campaign against the deal. “We have the problem that what is the structure of the deal,” Joyce told Bloomberg Television. “We still have the same problem that the resource in situ in the ground is owned by another nation’s government inside our nation. That is the problem.” Rio rose 2.3 percent in Sydney trading to A$66.30 at 10:07 a.m. after rising 4.3 percent in London yesterday. Under the existing proposal, Chinalco will have an 18 percent interest in Rio Tinto “We don’t comment on market rumor and speculation,” said Amanda Buckley, spokeswoman for London-based Rio. Liz Morley, a London-based spokeswoman for Chinalco, declined to comment when contacted by telephone. Marketing Changes The Chinese company is prepared to replace marketing provisions in the agreement with an undertaking that it won’t play a role in selling or setting prices for Rio’s production, the Herald reported. Chinalco is also willing to abandon its claim to 30 percent of Rio’s iron-ore output, the newspaper said. It will support conditions from Australia’s Foreign Investment Review Board that would “re-Australianize” London- based Rio, the Herald said. Those conditions may include raising the number of Australian directors to three, requiring certain executives to reside in the country, and specifying the number of board meetings to be held there each year, the Herald said. Those changes don’t remove concerns that Australia will be handing too much control to an arm of the communist part of China, said Joyce, who said he had spoken to Rio shareholders who opposed the deal. “Pressure is mounting immensely on Prime Minister Rudd,” Joyce said. “You have to ask: ‘should the sovereignty of your nation pass to another nation by reason of acquisition?’” FIRB may ask Chinalco to resubmit its application after the June 15 deadline for further deliberation, delaying Rio’s plan to put the proposal to an investor vote, the Herald said. Rio announced the Chinalco accord in February to help slash $38.9 billion of debt. To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.netBrett Foley in London at bfoley8@bloomberg.net.