Rio Tinto has declined Chinalco's proposed US$19.5bn cash injection - what was to be the biggest investment deal in both Australian and Chinese corporate history.

Rio Tinto today announced that Chinalco's offer of a US$19.5bn cash injection "will no longer be pursued," and has instead chosen to raise capital by way of a US$15bn rights issue. Rio has also announced a JV with BHP Billiton on their respective iron-ore assets in Western Australia worth about US$10bn.

Rio's legal team on the collapsed deal were Fried Frank, Wachtell Lipton, Linklaters and Allens Arthur Robinson. Acting for Chinalco were Clifford Chance, Mallesons and Haiwen & Partners.

Mallesons' Peter Cook said that their clients Chinalco were disappointed with the outcome of the deal.

Allens, as longstanding Rio counsel, will be working on Rio's rights issue as co-principal advisors with Linklaters, and as principal advisors on the JV with BHP. Allens partners Scott Langford and Nic Tole have been engaged on these deals.

“We’ve been proud to be principal advisor to Rio Tinto and will continue to work with them on these deals,” said Allens partner, Scott Langford.

Reasons for the collapse of the deal was cited on Rio's rising share price and feedback from its shareholders. "Our transaction with Chinalco was the right decision in February. Financial markets have since improved, significantly creating more options," said Rio Tinto chief executive Tom Albanese . "Changing circumstances, feedback from shareholders and regulators resulted in the need to revise the Chinalco agreement and this was recognised by both sides.

Rio have agreed to pay Chinalco a US$195m break fee.

Read past ALB stories on the Rio Tinto/Chinalco deal:

All the law firms heading up Rio's new deals (June 09)

Mallesons and Clifford Chance on deal financing (April 09)

ALB Law Awards 2009 list of Rio-Chinalco deal winners (May 09)  

Credit crunches Rio-BHP merger (Oct 08)