Rio, Chinalco may cut size of equity bond - paper

SYDNEY, June 3 (Reuters) - Global miner Rio Tinto (RIO.AX) (RIO.L) may cut the size of its planned $7.2 billion issue of convertible bonds to China's Chinalco [ALUMI.UL] and raise more equity via a rights issue instead, the Australian Financial Review said on Wednesday.

Rio Tinto agreed to issue the bonds to major shareholder Chinalco as part of a $19.5 billion equity tie-up with the state-owned Chinese firm, but other Rio Tinto shareholders have objected, saying the terms are overly favourable to Chinalco.

Citing no sources, the Review said the changes to the deal could come before the end of next week. A rights issue would allow all shareholders to take part in Rio Tinto's huge fund-raising, which is designed to help pay down debt.

The tie-up would also give Chinalco direct equity stakes in some Rio mining assets. The bonds would double Chinalco's stake in Rio Tinto shares to 18 percent if redeemed in stock.

The deal has also sparked political concerns in Australia about China's ability to influence pricing of strategic commodities.

Several of Rio Tinto's big UK shareholders have also voiced opposition, pushing alternative plans that include a rights issue and a tie-up with bigger mining rival BHP Billiton (BHP.AX) (BLT.L).

The Review said the head of the Australian Shareholders Association had expressed concern to Rio Tinto Chairman Jan Du Plessis over Chinalco's ability to appoint two directors to the Rio Tinto board, saying this could give Chinalco undue influence over Rio Tinto's revenues and future growth.

Australia's Foreign Investment Review Board (FIRB) is expected to make its recommendations on the deal to Treasurer Wayne Swan by June 15. Swan has the final decision. (Reporting by Jonathan Standing; Editing by Mark Bendeich)