Chinalco’s $US19.5 billion ($27 billion) deal with Rio Tinto are unlikely to trouble the government and its best assets will draw regulatory scrutiny, according to the Australian reports Thursday.
One of the major concerns of the Government and market appears to be on the potential influence the investment would have on pricing, particularly on iron ore,' Citigroup analyst Clarke Wilkins said.
However, Chinalco's main concern is the asset stakes.
“We see this as a problem of them, selling Australian tier-one assets essentially to a foreign power without really recourse to the shareholders,” The Australian Shareholders Association's Duncan Seddon said, We will be in the position where a London company sells Australian assets to a foreign country.
The deal which expects to take 18 percent stakes in Rio Tinto through convertible bonds issue and takes 15 to 50 per cent of its Rio's best iron ore, aluminum and copper assets, would also pay down Rio Tinto’s $US40 billion debt.
Wilkins expects Wayne Swan to limit the number of Rio board members to one that the Chinese aluminum giant can appoint, and cap its stake at 15 percent, if that happens the bond issue would be reduced from $US7.2billion to $US4.8 billion.
It also sees a potential Chinalco representation on the iron ore marketing alliance will be blocked, in a view that China has shown a bit control to its own domestic iron ore spot price and Rio will still retain the majority vote, Wilkin said.
Yesterday, Miner Rio Tinto posted weaker first-quarter aluminum production fell of 6 percent, iron ore production was down 15 percent, while refined copper rose 33 percent as the company struggled to balance the supply in the current economic demand.
Rio Tinto shares up 70c to $58.05 in Australian Stocks trading.