Australian politicians turned up the heat against Rio Tinto Ltd/Plc's
A source close to the transaction said meanwhile that legal advice favored a simple majority vote of Australian and UK shareholders to back the deal, amid media reports the company was considering requiring 75 percent support in any vote.
The deal, designed to help Rio cut its $39 billion debt burden, has aroused political concerns about key Australian assets falling into the hands of China and sparked protests from investors who say the deal favors one shareholder over others.
The Australian government would never be allowed to buy a mine in China. So why would we allow the Chinese government to buy and control a key strategic asset in our country. Stop the Rudd government from selling Australia, Senator Barnaby Joyce said in TV ads airing this week in Canberra and his home state of Queensland, where Chinalco will pick up some asset stakes.
Under the deal, state-owned Chinalco would pay $12.3 billion for stakes in iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.
Australia's treasurer needs to approve the deal on national interest grounds, after which Rio Tinto plans to put the deal to a shareholder vote in an ordinary resolution that would need support from a simple majority for the deal to go ahead.
However some UK shareholders have said given the scope of the proposal, which would give Chinalco two seats on the board and joint venture rights on key assets, Rio should put up a special resolution, which would require 75 percent support.
Britain's Daily Telegraph newspaper reported that Rio Tinto was considering whether to raise the approval threshold to 75 percent. The company declined to comment.
The source close to the transaction said legal advice backed a 50 percent threshold.
We've got a strong legal opinion that this is an ordinary resolution, not a special resolution, the source said.
Rio Tinto warned in its annual report, released on Tuesday, that if the Chinalco deal was not approved and it failed to complete other planned asset sales, it might have to renegotiate its $40 billion in credit facilities on more onerous terms.
NOISE IN CANBERRA
Australia's Foreign Investment Review Board, which advises Treasurer Wayne Swan, on Monday extended its review of the complex deal for up to 90 days, moving the deadline to June.
The political furor over the Chinalco and other Chinese investments in Australian miners, including Minmetals' $1.7 billion rescue bid for OZ Minerals Ltd
The upper house Senate on Wednesday is expected to endorse an inquiry into whether foreign investment and proposals from state-owned entities to invest in Australian companies are in Australia's national interest.
Australian Greens leader Bob Brown moved on Tuesday to set up an inquiry, but his move was blocked in the Senate after Joyce said he would move a similar motion on Wednesday, to refer the issue to the Senate economics committee.
If the Chinalco deal with Rio Tinto goes ahead the communist bosses in Beijing will exert control over the management of Rio Tinto's Australian mineral resources, Brown said in a statement.
Trade Minister Simon Crean said he had seen concerns raised by Rio's fourth-largest shareholder in its Sydney-listed shares, Australian Foundation Investment Co, flagging potential conflicts of interest, and said the concerns would be considered by Swan.
That's what the national interest test is about. They are concerns that obviously the Treasurer will take into account when he makes the decision, Crean told reporters.
Crean said Australians needed to understand the importance of more two-way investment between Australia and China, which is Australia's largest bilateral trading partner and Australia's second largest export market .
Australia is also seeking a free trade agreement with China, although negotiations have stalled. But Crean said the free trade agreement was not being used as a bargaining chip over the foreign investment decisions.
Not at all. It hasn't come into it. We've made no connection between the two. Neither have the Chinese, he said.
The approach that we are pursuing with China is no different than we are pursuing with every other country that we are trying to strengthen and build our economic relationship with.
(Editing by Jonathan Standing)