Rio Scraps Chinalco Deal for $15.2 Billion Offering (Update1)

June 5 (Bloomberg) -- Rio Tinto Group, the third-largest mining company, will raise as much as $15.2 billion in a share sale after rejecting an investment from Aluminum Corp. of China. Investors will be offered 21 new shares for every 40 they hold at 1,400 pence each, or 49 percent below yesterday’s close in London, the company said today in a statement on Australian stock exchange. BHP Billiton Ltd. also agreed to pay Rio $5.8 billion to form an Australian iron ore joint venture. The funds replace the planned $19.5 billion investment from Chinalco, as the state-owned Chinese company is known. That deal, which would have been the largest single foreign investment by a Chinese company, was criticized by Rio’s third- largest investor Legal & General Group Plc for not allowing shareholders other than Chinalco to participate. “I am a big fan of getting rid of Chinalco as it keeps the assets in the hands of the Australians,” Chris Weston, an institutional dealer at IG Markets in Melbourne said by phone. “They will probably grow quite significantly from this.” Rio and BHP may supply 75 percent of China’s imports of iron ore this year, according to Goldman Sachs JBWere Pty. China is the biggest steelmaker. Brazil’s Vale SA is the largest iron ore producer. BHP and Rio may save more than $10 billion by combining their iron-ore assets in the Pilbara region, BHP and Rio said in the statement. “China is a big customer but at the end of the day Rio has to satisfy all shareholders, while China will still need iron ore,” Tobias Woerner, a London-based analyst at MF Global Securities Ltd., said yesterday. Second-Biggest At $15.2 billion, the rights offering would be the second- biggest this year after HSBC Holdings Plc, which sold $18.3 billion of stock in April. Rio joins companies including Xstrata Plc, the world’s fourth-largest copper producer, that have sold $45.2 billion of stock to existing investors, data compiled by Bloomberg show. Rio, which rejected a hostile offer from BHP in November, is cutting jobs and trying to sell assets to repay $10 billion of debt this year. It has total borrowings of $38.9 billion, incurred mainly through the 2007 purchase of Alcan Inc. Under the plan announced Feb. 12, Chinalco had agreed to buy $7.2 billion of convertible debt and pay $12.3 billion for stakes in some Rio projects. Rio committed to pay Chinalco a $195 million break fee should the mining company withdraw from the deal or recommend an alternative proposal.