Anglo-Australian mining group Rio Tinto has drawn up plans to ask shareholders for as much as £8bn in a rights issue if its controversial planned capital injection from Chinalco, the state-owned Chinese aluminium producer, is voted down.
According to reports, a deal with JP Morgan Cazenove, which would underwrite the rights issue, has been in place since the company unveiled its full year results in February.
News of the plan will be welcomed by the company's shareholders, although it is expected to put greater pressure on investors' already fragile confidence in the Chinalco investment. The $19.5bn (£13.2bn) agreement with the Chinese group has stoked substantial ire among a number of Rio Tinto's biggest investors as the deal will cede 18 per cent of the group to the Chinese. Some have complained that Chinalco is being given preferential treatment.
Rio Tinto is desperate for funding as it attempts to plug a debt hole of about $40bn brought about by what is now considered a top-of-the-market deal to buy its rival Alcan in 2007. The group then rejected a bid from fellow Anglo-Australian miner BHP Billiton, which spent most of last year trying to buy Rio.
While Rio Tinto continues to argue that the Chinalco deal gives it access to cheaper financing than alternatives and that it remains the company's focus, analysts remain sceptical. "While the deal with Chinalco could solve Rio Tinto's debt repayment problems over the next two years, we believe that it would do so at too high a cost," said Evolution's Charles Kernot last month. "Against this backdrop, we recommend shareholders vote against the Chinalco transaction."
As well as facing investor discontent, there have also been political objections to the deal, particularly in Australia. Plans for a rights issue had been in place before the company announced the Chinalco tie-up. They were shelved, however, when the more lucrative deal with the Chinese company was signed. JP Morgan and Credit Suisse had been enlisted to underwrite the initial capital-raising.Reuse content