When I was a kid I used to pray every night for a new bicycle.hen I realised God doesn't work that way, so I stolen one and prayed for forgiveness Your position:Home->china news-> Chinalco is the big loser of the deal with Rio Tinto The state-owned newspaper Time Weekly of China, of Guangzhou, bemoaned that the deal had 'evolved into a political event.' It told of how Chinese had renamed two Australian senators, Nick Xenophon and Barnaby Joyce, who had gone on local television urging the 'Australian government to prevent China government from taking over its resources.' The new monikers? Nick Xenophobe and Ban-a-Buy Joyce, the article said. The newspaper said the real problem was that Australia saw Chinalco only as a state-owned company and refused to see the pressing business rationale for the deal to shore up the Australian mining giant's debt-laden balance sheet. 'Simply put, it is a conflict between business interest and national interest,' the paper said. The state-owned China Business News expressed disappointment over the breakup of the $19.5 billion deal and frustration over the Australian government's frequent pushing back of a final decision date. 'The failure of the deal is bad news for Chinalco,' the paper said. Individual Chinese voiced similar sentiments. One person writing in the online forum run by the state-owned Globe Times newspaper under the name 'Hang-Tang Heritage' said that 'on the one hand, we should be happy that china is attempting a substantial overseas takeover,' one much larger in value than the previous ones. 'This is a corner stone deal,' Heritage wrote. Still, Heritage said 'it is doubtful that the foreign government, its stock supervisory committee, along with Rio's shareholders, would be willing to acknowledge the deal in the end.' Another article in The Time Weekly said 'it was absolutely absurd for Rio to reject Chinalco because [Rio] stock rallied. The price went up exactly because of Chinalco's announcement to buy Rio!' In fact, Rio's stock slumped 11% on May 14 when the market realized the deal might not go through, the article said. Despite the perceived blow to Chinese prestige, there wasn't much enthusiasm for any further concessions Chinalco might make to revive the deal. Analyst Mei Xinyu from China's Ministry of Commerce said in an interview with Shanghai Securities News that Chinalco shouldn't compromise too much any more. 'We are not some philanthropist that gives out over $10 billion for nothing,' she said. And what was the verdict of Mr. Market? Chinalco stock rallied 10% on the news, the daily limit for Shanghai-listed stocks. Jodi Xu Blame it on Rio? The Chinese will. Rio Tinto's own shareholders will more likely point the finger at the miner's chief executive, Tom Albanese. That isn't to say abandoning the $19.5 billion deal with Aluminum Corp. of China (Chinalco) isn't the right thing for Rio to do. The company appears, correctly, to be taking advantage of recent optimism, and a sharp share-price rise, to recapitalize itself through a rights issue. In addition, according to someone familiar with the board's thinking, it is planning a tie up with rival BHP Billiton that will include the key Pilbara iron-ore operations in Australia. For all that, Mr Albanese's credibility is seriously damaged. When the proposed deal with Chinalco was announced in February, Rio had limited options. But in trampling U.K. shareholders' cherished pre-emption rights and exposing divisions over strategy by losing chairman-elect Jim Leng along the way, the company mishandled the situation. Moreover, the primary reason for Rio's distress was a balance sheet larded with debt resulting from the overpriced acquisition of Alcan in 2007. And while there is something to be said for adapting to changing markets, such zig-zagging in the space of a few months is disconcerting for a business that supposedly thinks in terms of decades rather than quarters. Along with any rights issue, a deal with BHP would help on several fronts. Now is not the time for revisiting a merger. A joint-venture for the companies' Pilbara operations would make sense, however. Annual synergies could be as high as $10 billion, says Michael Rawlinson of Liberum Capital. Rio's assets comprise the bigger share, so it would reap most of the benefit or, alternatively, BHP could make a balancing payment, offering further repair for Rio's balance sheet. Shareholders still grumbling about the collapse of the earlier Rio-BHP merger process might also be appeased. BHP comes out the clear winner in this situation. The Australian government is also spared having to either approve or block Chinalco's investment. The debate down under has become increasingly poisonous, with recent television ads against the deal featuring images of the 1989 Tiananmen Square crackdown. The big loser in all this is Chinalco and, more broadly, China. A deal with Rio would have been in a league of its own in terms of scale and prestige. Having carefully constructed the transaction to avoid a protectionist backlash, the Chinese must wonder what it will take to secure a strategic deal with a major foreign energy or mining company. Worse, if a BHP-Rio iron ore joint venture does materialize, it will entrench the position of two major suppliers of a vital raw material for China -- the exact opposite of what Beijing wanted. Liam Denning 
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