Shares in global miner Rio Tinto (RIO.AX)(RIO.L) sank 6.8 percent on Monday after a newspaper said it would try to persuade irate shareholders to back a $19.5 billion tie-up with Chinalco by offering them bonds on the same terms as Chinalco.
The article by commentator Michael West on the Sydney Morning Herald's Web site (www.smh.com.au) gave no source for the information.
Chinalco, China's top aluminium maker, agreed this month to pay $12.3 billion for stakes in Rio's key iron ore, copper and aluminium assets and $7.2 billion for convertible notes that could potentially double its equity stake in Rio to 18 percent.
The deal sparked protests by Rio Tinto's top shareholders in Britain who said the company should have done a rights offering to all shareholders so that their stakes in the company would not be diluted.
In response to the backlash from its powerful institutional shareholders over the proposal, Rio is understood to be working on a deal which would deliver them a slice of the Chinalco action: that is, an offer of bonds on the same or similar terms, the article on Monday said.
Rio Tinto's shares fell to a low of A$46.01 after the article came out, and ended the day down 6.8 percent at A$46.87, underperforming rival BHP Billiton's (BHP.AX)(BLT.L) shares, which fell 3.9 percent.
We do not comment on market rumour or speculation, Rio Tinto spokeswoman Amanda Buckley said.
A spokesman for Chinalco in Australia said any fresh plans by Rio were ultimately its decision. We're certainly working on the basis that it's proceeding as agreed, said Jim Kelly at public relations firm FD Third Person.
A portfolio manager at Fortis Investment Partners, which owns Rio shares, said he had not been approached by the company with such a plan, nor had it been discussed with Australian institutions who met Rio Tinto's chief financial officer in Sydney last week to talk about the deal.
But he said a move to offer notes to angry shareholders would make sense.
It strikes me that if I were on Rio's board, I would be thinking along those lines, said Neil Boyd-Clark, portfolio manager at Fortis. All things being equal, they (shareholders) would probably welcome the opportunity, he said. (Reporting by Sonali Paul)
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