MELBOURNE Global miner Rio Tinto (RIO.L) (RIO.AX) may replace the $7.2 billion convertible bond part of its tie-up plan with Chinalco with a capital raising underwritten by the Chinese firm, the Australian newspaper said on Wednesday.
Without citing sources, the paper said Rio is believed to have told state-owned Chinalco that talks with Rio shareholders have brought demands for changes to the planned $19.5 billion tie-up.
The report is the latest in a series saying that Rio may be considering changes to the Chinalco deal. The speculation has come as new Rio Chairman Jan Du Plessis meets shareholders to discuss the deal, which was designed to help Rio pay down half its $38 billion in debt.
"We do not comment on market rumor or speculation," Rio Tinto spokeswoman Amanda Buckley said.
Rio shares in London gained 1.5 percent to 2,785 pence by 0840 GMT (4:40 a.m. EDT), compared to a 1.1 percent increase in the UK mining index .FTNMX1770. The shares have jumped 87 percent this year, but are off a intraday peak of 3,193 pence hit on May 7.
Sydney listed shares closed 1.6 percent firmer.
Chinalco has not indicated that it is happy to compromise on the deal, but is thought to be resigned to changing the terms of the bonds, the paper said. It does not want any change, however, to the part of the deal that gives it stakes in Rio mining assets, it added.
Chinalco agreed to pay $12.3 billion for stakes in key Rio assets, such as the flagship iron ore operations in Australia.
Major UK-based investors in Rio have demanded that it scrap a deal with Chinalco and actively pursue a new capital raising or a sale of assets to rival BHP Billiton Ltd/Plc (BLT.L) (BHP.AX).
Analysts and fund managers have said Rio would have to be looking at a range of alternatives, given that equity, debt and commodity markets have improved since Rio agreed the deal with Chinalco, so other funding alternatives might be more attractive.
However, Rio Tinto has been touting the benefits of the tie-up, including the access it will have to cheap financing and resources in China.
"If it did go another funding route, you'd think having built that relationship with Chinalco, nothing was done to damage that over the longer term. It wouldn't look very good, even though it might appease a few UK investors," said Peter Chilton, an analyst with Constellation Capital Management, which owns shares in Rio.
Rio has repeatedly said it remains committed to the tie-up with Chinalco.
The deal still needs approval from Australian regulators, which may impose conditions, and shareholders.
If changes are demanded by Australia's treasurer, that might prompt Rio to also rejig elements opposed by shareholders, such as the convertible bond, some analysts said.
Citigroup analyst Johan Rode said in a recent note that Australia is expected to limit Chinalco's shareholding to 15 percent from the proposed 18 percent.
"Limiting the shareholding could largely knock out the in-the-money convertible notes if it was structured in this way, potentially making the deal more palatable for shareholders," Rode said.
(Additional reporting by Eric Onstad in London; Editing by Jonathan Standing and Simon Jessop)