Three, for now, is the magic number. Chinalco’s concession on the terms of its rescue deal, allowing Rio Tinto’s existing investors a slice of the convertible bond, is a deft piece of legerdemain. By reducing its post-conversion stake in Rio to 15 per cent from 18 per cent, Chinalco will not avoid the scrutiny of Australia’s Foreign Investment Review Board, which has veto power over the purchase of even a single share by an overseas state-owned group. But, as 15 per cent is FIRB’s threshold for a “substantial interest”, Chinalco has signalled that its intentions are honourable. Meanwhile, UK shareholders invited into the bond will have less cause to bellyache over pre-emption rights.
Even so, more concessions need to follow. Senator Barnaby Joyce will need more than this thin sliver of equity to call off his “keep Australia Australian” campaign. Shareholders on both ends of the register will need more convincing that the mismatch of motives – Rio’s interest in the deal is opportunistic but Chinalco’s is strategic – will not be corrosive over time. Chinalco, after all, still has a corker of a deal. Aside from the nearly in-the-money convertible bond, at a now generous-looking coupon, Rio has agreed to sell stakes in nine mines to a customer and would-be competitor at what looks like the bottom of the commodity cycle.
If the asset sales really are non-negotiable, then Chinalco must give ground on the vast web of agreements covering every aspect of Rio’s operations: strategy, executive performance, provision of capital and board representation. Why Chinalco needs to be a virtually equal partner in an iron ore marketing venture covering 30 per cent of Rio’s production, for example, is anyone’s guess. By tweaking terms, Rio might risk ill-feeling creeping into its “pioneering strategic partnership”. Tough. Rio is no longer at death’s door. It should ask itself whether it really now needs this deal at all.