Pension fund Scottish Widows Investment Partnership Thursday said Rio Tinto PLC's (RTP) proposed $19.5 billion deal with Aluminum Corp.of China overrides its rights to buy into new shares the company will issue.

"We are very disappointed that Rio Tinto has decided to override our clients' preemption rights and issue attractive equity to one shareholder without offering it to all shareholders," said Robert Waugh, head of U.K. equities at Scottish Widows Investment Partnership.

"We will be engaging with the board with a view to protecting our clients' interests," Waugh said.

Rio Tinto Thursday revealed a deal with Aluminum Corp. of China that will give the Chinese group minority stakes in a suite of assets for $12.3 billion and convertible bonds valued at $7.2 billion, which could ultimately deliver an 18% stake in the miner.

The arrangement has irked some shareholders concerned that their stake in the miner will be diluted as Chinalco gains. Some had preferred a broader rights issue open to all investors.

"Relationships with shareholders will be strained by this (deal) - they are in effect being asked to 'back or sack' a management still under scrutiny from the mistake that was the Alcan purchase," Liberum Capital analyst Michael Rawlinson said in a note to clients.

"We feel shareholders rightly or wrongly would have preferred the slower diplomacy of a rights issue," Rawlinson added.

Rio took on $40 billion in debt to fund the purchase of Canadian aluminum company Alcan in October 2007. The deal with Chinalco is meant to wipe out a portion of that burden.

Rio Tinto Chairman Paul Skinner Thursday said the deal offers superior value to shareholders and would advance the miner's capability in the Chinese market.

"Chinalco's cash investment of US$19.5 billion will strengthen Rio Tinto's balance sheet, increase our flexibility to deliver growth as markets recover and position Rio Tinto for the next decade and beyond," he said.

Rio Tinto shareholders, in the U.K. and Australia, are likely to vote on the deal some time in May. A simple majority vote is necessary.

Scottish Widows Thursday said it holds roughly 8 million Rio Tinto shares, or less than 1% of the company, valued at about GBP157.7 million.

Company Web site: www.swip.com

-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347; jeffrey.sparshott@dowjones.com