Chinalco Offered Concessions in Rio Deal

BEIJING -- The president of Aluminum Corp. of China said the metals giant had been willing to make major concessions to save its planned $19.5 billion alliance with Rio Tinto, and that disagreement over board representation helped kill what would have been China's biggest outbound investment. Last week Rio Tinto announced it was abandoning the deal with Chinalco in favor of a rights issue and a joint venture with rival Anglo-Australian miner BHP Billiton Ltd. In his first press conference since the deal collapsed, Xiong Weiping, president of Aluminum Corp., or Chinalco, said Thursday his company had been ready to halve its shareholding in Rio's massive Hamersley iron ore mine in Western Australia. It also offered to reduce its overall stake in Rio below the 18% that Chinalco could have ended up with under the original offer, and to change the terms of a convertible bond issue that was part of the deal. In his comments Mr. Xiong didn't address any possible negotiations on the price of the deal. "We believe these are very significant concessions and amendments to the original transactions and they should be sufficient to meet the requirements of both the shareholders and the Australian regulators," Mr. Xiong said. He said one key source of disagreement was how many seats Chinalco would get on Rio's board, though he didn't elaborate. The original deal would have given Chinalco two board seats. Rio Tinto declined to comment on details of its discussions with Chinalco. But Rio spokesman Nick Cobban said that improving market conditions, shareholder opposition and uncertainty over regulatory approval underpinned the final decision. "We weren't able to reach an agreement [with Chinalco] despite discussing with them over several weeks. We have kept them in the picture throughout," Mr. Cobban said. In his remarks, Mr. Xiong avoided any of the heated nationalist talk that has shadowed the Chinalco-Rio deal in both China and Australia. "In the process of this transaction, Chinalco has felt the open and welcoming attitude from the Australian government towards foreign investment, including from China," Mr. Xiong said. In an indication that the deal's collapse hasn't frozen Chinese investment in Australia, OZ Minerals Ltd. shareholders on Thursday approved the sale of $1.39 billion of assets to China Minmetals Non-Ferrous Metals Co. after Minmetals increased its original offer to fend off a rival proposal from an investment bank. Mr. Xiong said the Chinalco-Rio deal was in trouble as early as April, when Rio's new chairman, Jan du Plessis, took office and began discussing alternatives such as a rights issue and joint venture with BHP. Shareholders also objected to the terms of the convertible bond, demanding terms similar to those offered Chinalco. And since the deal was struck in February, Rio's share price rose enough to wipe out the premium Chinalco had offered. Those talks with shareholders "fundamentally altered the foundations for the original offer," Mr. Xiong said. With credit and commodities markets recovering, Rio announced last Thursday it was scrapping the Chinalco deal in favor of a $15.2 billion rights offering and a cash payment of $5.8 billion from BHP for an iron ore joint venture. Rio needs the cash to pay off debt from acquisitions at the height of the commodities boom. Chinalco still wields considerable clout because it owns 9% of Rio, making it the company's biggest shareholder. Mr. Xiong said Chinalco will "pay close attention" to the new rights offering and the joint venture, but hasn't reached a decision yet on whether to increase its holdings. Some Australian politicians opposed Chinalco's bid, claiming it gave too much control of strategic assets to a government-controlled company without any reciprocity. Critics in Australia worried that Chinalco would act as a proxy for the Chinese government, which owns it, and seek lower prices for iron ore and other minerals that are key to China's continued economic growth -- rather than trying to maximize profits. Some worried that Chinalco would use seats on the board to gain that leverage. Mr. Xiong acknowledged the "robust debate" in Australia, but said "this is expected. We hope this kind of debate can be held on the basis of full understanding." Some commentators in China have reacted with fierce criticism of the Rio-BHP deal. Chinese trade groups said the deal moves in the direction of a monopoly, and newspaper articles in the state-controlled domestic press blamed the anti-China backlash in Australia for scuttling the deal. On Thursday, Export-Import Bank of China President Li Ruogu criticized Rio for ending the Chinalco deal. "We don't think it's a healthy decision or an appropriate attitude a company with an international background should adopt," he said.