Chinalco in no rush to leap into Rio counterbid

HONG KONG (Reuters) - BHP Billiton's (BHP.AX) (BLT.L) $147 billion bid for Rio Tinto (RIO.AX) (RIO.L) put the focus on China's next move and whether Beijing would enter a bidding war for the world's second-biggest mining company.

State-owned Chinalco and its partner, U.S. aluminum giant Alcoa Inc (AA.N), which last week gate-crashed BHP's plan for a takeover of Rio with a $14 billion purchase of a 9 percent stake in the company, were in no rush to make their next move.

"There's no need to get shot-gunned into anything," said a source with direct knowledge of Chinalco's plans, who declined to be named because of the sensitivity of the situation.

Chinalco and Alcoa have reserved the right to counterbid for Rio and sources familiar with the situation said there was more funding available from China Development Bank, the state lender that backed the initial foray into the market.

"We will review it together with our partners and we'll go from there. We're in the process of going through the materials. We'll analyze it," said Alcoa spokesman Kevin Lowery.

In a statement from their bidding vehicle Shining Prospect, Chinalco and Alcoa later said they were keeping an eye on events and awaiting any response from the board of Rio Tinto.

"As shareholders in Rio Tinto plc, we believe any offer should reflect the fundamental value of the company," they said.

The two firms built their surprise stake in a move that was perfectly timed to stymie BHP's bid, forcing it to sweeten its offer in what would be the world's biggest ever mining merger and second-largest in any sector.

BHP and Rio are two of the world's three big suppliers of iron ore, along with Vale (VALE5.SA) of Brazil, and a tie-up between them would leave China in a weaker position for buying the iron ore needed for its steel sector, the world's biggest.

COLD SHOULDER FOR BHP

BHP tried to contact Chinalco on Tuesday to get an idea of its game plan, but failed to win an audience, said the source.

"They, logically speaking, wanted to know where we stood before they moved forward," the person said, adding: "They failed to connect."

Chinalco's last-minute share purchase forced BHP into a weekend dilemma between risking a bidding war with Chinalco, which has reserved the right to counterbid, or withdrawing and walking away for six months, under British takeover rules.

Another possibility would be for BHP to bring Chinalco into a bidding consortium for Rio.

Larry Grace, an analyst at Kim Eng Securities in Hong Kong, said he expects Chinalco and Alcoa to make a counterbid for Rio.

"I think they now come back with something even pricier, and put pressure on BHP. The goal will be to make it too expensive for BHP, even though their own bid would be up for being blocked by Rio's board or regulators," Grace said.

"Keeping the status quo might be the best solution in their eyes," he added.

Sources familiar with the matter said Chinalco was in no hurry to make the next move and dismissed talk that a counterbid was already underway.

BHP is offering Rio shareholders 3.4 BHP shares for one Rio share, a slightly sweetened deal from a three-for-one offer that was tentatively put forward late last year.

Analysts say BHP's all-stock offer is designed to weather market fluctuations, since BHP and Rio shares often move in similar ways, and it may even become more attractive when the market falls. But that could be undermined by Chinalco's willingness to pay cash and a premium to the market.

Chinalco and Alcoa paid 60 pounds per share, a 21 percent premium to Rio's closing price on the previous day. The shares closed well below that price on Tuesday, at 54.34 pounds. The Sydney shares slipped 0.2 percent on Wednesday.

Despite Chinalco's state funding, it may not have unlimited resources, since analysts say China would be keen to present any takeover as a commercial rather than state-backed deal.

The growing debt burden was already weighing on the shares of Chinalco's subsidiary, Aluminum Corp of China Ltd (2600.HK), or Chalco, which is a major cash generator for its parent.

The Hong Kong-listed stock slid as much as 10 percent on Wednesday after rating agency Standard & Poors put Chalco on creditwatch for a possible downgrade.

(Editing by Anne Marie Roantree, Ian Geoghegan & Louise Heavens)