The biggest overseas deal in Chinese history, the US$19.5 billion tie-up between Aluminum Corp of China (Chinalco) and Rio Tinto, looked to be heading for the rocks last night after weeks of wrangling. Rio Tinto did not deny reports in the Australian media that it planned to walk away from the controversial transaction and instead launch a massive rights issue to solve its debt problems. 'Rio Tinto notes press speculation. It is pursuing a range of options, some of which are at an advanced stage, for maximising shareholder value and improving the group's capital structure,' the miner said. The share price of the Anglo-Australian giant fell on the London Stock Exchange to close 6.59 per cent lower at GBP27.20 (HK$345.70). It dropped 6.56 per cent to A$66.90 (HK$418.29) in Sydney earlier. Chinalco Overseas Holdings president Wang Wenfu declined to comment late last night, but indicated the company could issue a statement this morning. Reports in London said Chinalco was the party walking away. The sticking point appears to have been failure to reach agreement over a US$7.2 billion convertible bond that was a key part of the deal. According to the tie-up plan announced in February, Chinalco would pay US$12.3 billion for stakes in debt-saddled Rio Tinto's key iron ore, copper and aluminium assets and US$7.2 billion for the convertible notes that would double its equity stake in Rio Tinto to 18 per cent. The terms of the convertible bond were pitched at a significant premium to Rio Tinto's share price in February. That premium has since shrunk. The two sides had been negotiating possible changes that included Rio Tinto cutting the size of the bond to limit Chinalco's shareholding to a maximum of 14.9 per cent. The deal has run into opposition from Rio Tinto shareholders, saying the terms are overly favourable to Chinalco, and also sparked political concerns in Australia about China's ability to influence pricing of strategic commodities. Australia's Foreign Investment Review Board is due to give its recommendation on the deal to Treasurer Wayne Swan by June 14, with Prime Minister Kevin Rudd's government then having the final say. There had been much speculation that the board would make a decision on the deal based on national interest. Analysts had feared that history could repeat itself as CNOOC, the mainland's largest offshore oil firm, fell victim to protectionism in 2005 when political opposition in the United States forced the company to withdraw its US$18.5 billion bid for oil firm Unocal Corp. Rio Tinto turned to Chinalco in February to help repair a balance sheet weighed down by US$38.7 billion in debt. A payment of US$8.9 billion is due in October. The firm is now said to be exploring several options, including a US$12 billion rights issue and creating a joint venture with rival BHP Billiton which will include stakes in eight assets that Rio Tinto had originally proposed to sell to Chinalco.