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Chinalco to look ahead after Rio's rejection

ALUMINUM Corp of China, also known as Chinalco, said it regrets its plan to invest US$19.5 billion in debt-laden global miner Rio Tinto has been rejected but added it will continue to explore opportunities in overseas markets.

"We are very disappointed. We continue to believe our proposal presented an outstanding value-creating opportunity for all Rio Tinto shareholders and would have provided a strong platform for a long-term strategic partnership between the two companies," President Xiong Weiping said in a statement.

The deal, which would have been the largest single overseas investment by a Chinese company, was scrapped after a Rio board meeting in London on Thursday. Agreed in February, the investment has been opposed by politicians in Australia, though it had been cleared by Australia's competition watchdog and regulators in the United States and Germany.

Rio will pay Chinalco a US$195-million penalty fee for the rejection. To help pay off its US$38.9-billion debt, Rio said it plans instead to raise as much as US$15.2 billion in a rights issue that will allow it to cut its debt without selling bonds and stakes in its largest mines to Chinalco.

"For Chinalco, it is losing a very ideal acquisition opportunity," said Mei Xinyu, a researcher at the Ministry of Commerce.

Chinalco will continue to explore opportunities to advance its strategic objectives and in the meantime will monitor developments at Rio as the company's largest single shareholder, Xiong said.

The real victim of the failed Chinalco investment may be the domestic steel sector, which had expected the deal to increase China's bearing in iron ore pricing in the long run, market observers said.

As part of its debt-cutting plan, Rio said it will form a 50-50 joint venture with rival BHP Billiton, its former suitor, to combine their iron ore business in Western Australia. BHP agreed to pay Rio US$5.8 billion to create the venture.

"This (venture) will substantially increase Rio and BHP's negotiating powers," Umetal Research Center said in a note. "That's more negative on China's steel sector."


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