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Is Rio Tinto an 'Unfaithful Woman?'

Posted by: Mark Scott on June 12

It’s not often a multi-billion dollar company is called an unfaithful woman. Yet those are the words used by a Chinese newspaper to describe Anglo-Australian mining giant Rio Tinto and its decision to scrap a $19.5 billion investment from state-owned Aluminum Corporation of China, or Chinalco. In a revealing article about the failed link-up, which would have been China’s largest ever foreign direct investment, the Financial Times quotes an editorial from the Beijing Times:

“Poor Chinalco prepared the wedding clothes, but when the peach was ripe somebody else plucked it,” the paper moans. “Rio Tinto is just like an unfaithful woman: once she loved the money in Chinalco’s pocket, but she actually didn’t love the man himself. Now she is breaking faith and kicking down the ladder.”

Maybe someone should ask Rio’s embattled chief executive, Tom Albanese, if the Beijing Times’ analogy is fitting.

All kidding aside, Chinalco has every right to feel bitter.

Under the new deal, Rio Tinto will raise $21 billion through a combined rights issue and joint venture with arch rival BHP Billiton. That will help pay down roughly $20 billion of debt Rio must repay by October, 2010.

As I've said before, Chinalco was a victim of bad timing. When it first made its $19.5 billion offer back in February, the debt markets were frozen and investor interest in stumping up cash for a rights issue was non-existent. Since then, however, the markets have sprouted tentative green shoots, which -- combined with somewhat xenophobic criticism over a Chinese company investing in Rio -- help shift the miner's focus away from Chinalco and back towards institutional investors.

That's little consolation for Chinalco, which still owes around 9% in Rio -- a pretty large dowry for someone who's just been jilted at the alter.

Reader Comments

2Bob

June 13, 2009 05:29 AM

The other shareholders will be pleased this crazy deal is off. Even the 9% is ridiculous -- I am sure the Chinese govt would not permit it if the situation were reversed. As a state owned company to whom does Chinalco owe its loyalties? Will it attempt to maximise profits for Rio Tinto or minimise the cost of resources to Chinese companies? The Australians are extremely foolish to permit any state owned enterprises to become shareholders in their mineral companies.

Con Sultant

June 13, 2009 05:43 PM

Rio is not acting like an unfaithful woman, more like a cheap whore.

Boon

June 16, 2009 12:17 AM

In fact, it is extremely foolish for Australian to deal with Chinalco in the rio tinto deal and not just iron ore but everything. Even milk can be used to nuture china military and poses a security threat to Australia. So let the rest of the world earn the good or bad money/business with china and Australia can kept everything for themselves - for national security of course. Funny to read that some parties in Australia used the famous "Tank Images In Tiannenmen Square" in a business deal. Always thought Australia is different BUT......NO!

Mark Scott -- BusinessWeek

June 16, 2009 06:21 AM

Without getting into a debate over China's geo-political intentions, the Rio deal would have helped Chinalco secure long-term access to much-needed assets. Sure, there were issues about how the state-owned company was going to finance the deal (capital came from a syndicate of banks led by China Development Bank, at reportedly below-market rates). But you can't blame Chinalco for trying to get top-tier assets at a then-cheap price.

The Rio now-defunct linkup isn't the only Australian mining deal involving the Chinese. On June 11, shareholders of Aussie miner Oz Minerals (active in zinc, copper, lead and silver) approved a $1.2 billion takeover from state-owned China Minmetals Nonferrous Metals Company. It doesn't match Chinalco's proposed $19.5 billion deal with Rio, but shows Chinese companies can still pick up mining assets in Australia.

Mark Scott -- BusinessWeek

Sage

June 17, 2009 02:03 PM

What goes around, comes around. Keep that in mind Rio!

jordan king

June 25, 2009 07:38 AM

I think Rio will go down like the Titanic. I am going to invest in Ansell Condoms. Please feel free to discuss, jordanking001@yahoo.com.au

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