Rio investors urge BHP to make new bid in wake of China deal

Top institutional investors have urged BHP Billiton to relaunch a takeover bid for mining rival Rio Tinto in a move to scupper Rio's deal with Chinalco, a UK newspaper reported on Sunday.

Shareholders determined to block Rio's planned $US19.5-billion ($A29.7 billion) deal with the Chinese state-owned metals group have offered to back a rights issue if it would encourage a new bid from BHP, Britain's The Sunday Telegraph reported.

"We have made it clear that a new bid from BHP, either as a whole or for some of the assets, would be preferable to the deal with China," one investor told the paper.

"Given that the level of Rio's debt is one of the biggest barriers, we have made it clear we will help address the problem with a rights issue."

Rio Tinto plans to sell stakes in its key Australian iron ore and aluminium operations and issue convertible bonds to major shareholder Chinalco to help pay down $US38 billion ($A58 billion) in debt.

But investors believe their pre-emption rights have been railroaded and there is concern Rio has put itself at a disadvantage by aligning itself so closely with its biggest customer.

BHP abandoned its hostile bid for Rio last year amid concerns over the Anglo-Australian miner's debt pile from its 2007 acquisition of Canadian aluminium producer Alcan.