Chinalco pops

26 November 2008 By John Foley Follow @johnsfoley

Chinalco, the Chinese miner, is nursing huge paper losses on its stake in Rio Tinto. But China Development Bank, which lent Chinalco $8bn against assets now worth $3bn, may pick up the tab. It s bad timing for an institution central to China s economic stimulus plan.

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BHP Billiton on November 25 renounced its allstock offer for rival mining group Rio Tinto, worth $66bn based on Monday's closing share price. It said that worsening market conditions and Rio's heavy debt load had made a deal too risky.

Rio's shares fell 37% on Tuesday to £15.50 each.

Chinalco, a stateowned Chinese mining company, holds 12% of Rio's UKlisted shares, which it bought in February for around £60 per share.

China Development Bank (CDB) backed Chinalco's purchase with a $3.6bn twoyear loan, a $2.6bn threeyear loan convertible into equity, and a $7bn line of credit, of which $2bn had been drawn but not used, according to US regulatory filings published in February.

CDB plans to make RMB40bn ($5.9bn) of new loans by the end of the year as part of a governmentled economic stimulus plan. Chen Yuan, CDB president, said on November 25 that most of the loans will be for key infrastructure projects.

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