It's over. Rio Tinto has scrapped the deal to sell 18% of itself to the Aluminium Corporation of China (Chinalco) for $19.5 billion. The share went into a trading halt earlier today. It appears Rio has decided instead for a $10 billion rights issue to raise at least some of the capital it needs to pay off its $40 billion in debt. $8.9 billion of that debt comes due in October, by the way.
So what now? Well, the Chinalco bid came at the bottom of the market. Things are a bit better now. And shareholders seem eager to provide the needed capital rather than bringing on board a suitor whose intentions are at best, opaque.
It certainly takes Wayne Swan and the Foreign Investment Review Board off the hook. But the question of how Australia will manage future overtures from state-owned Chinese companies is still on the table, and will be for many years. China has capital and a large appetite for Aussie resources. That won't change any time soon.
But in the meantime, the market looks a little tired. The Dow managed to eke out a 77 point gain overnight. Aussie stocks, though, are in the red. The only real movers today are over in the commodity patch with oil and gold.
Dan Denning
for The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
