THE board of BHP Billiton, the world’s largest mining group, is considering the sale of one of its largest subsidiaries, BHP Petroleum, to help finance a hostile takeover of Rio Tinto.

BHP’s financial advisers, Goldman Sachs and Citigroup, are understood to have already flown out to China to sound out potential bidders for the subsidiary, which could be worth more than £20 billion. There would also be interest in the oil and gas fields from other international buyers.

Analysts say the petroleum division has always sat uncomfortably in the groupp’s portfolio and a sale would be welcomed by the City. However no decision to sell BHP Petroleum has yet been made.

This weekend BHP is considering whether to table a hostile, all-paper £81 billion bid for Rio. The company is arranging a $70 billion bank facility through Citi to refinance some of Rio’s debts should a takeover be successful. Some $30 billion of this sum could be used as a cash sweetener to encourage Rio shareholders to sell out.

But Rio is not expected to go quietly. Tom Albanese, chief executive, is preparing a City charm offensive to outline the hidden value of the company’s international portfolio of mines and development prospects.

Sources close to Rio say the board is unlikely to entertain an offer below £70 a share, compared with the £48 value of the current Rio proposal, based on Friday’s closing prices.

Rio’s board is also understood to have authorised advisers to begin a preliminary investigation of other potential suitors. Mining giants CVRD and Anglo American are the obvious interlopers, while City sources said a Chinese interest – probably in combination with a western mining business – could not be ruled out.

The approach to Rio, revealed on Thursday after a week of talks between the groups, has captivated the industry and the City. It would be the second-largest takeover deal ever, and create one of the world’s largest companies with a stock-market value of more than £170 billion.

The merged group would also have a powerful position in many commodities markets, particularly copper, aluminium, coal, silver and diamonds. Most importantly, it would have a 36% share of world iron-ore production. The deal would unite the major iron-ore mines in Australia under common ownership, and give a strangle-hold over China’s iron-ore imports. China relies on imports of Australian iron-ore to run its steel mills.

Competition regulators are expected to take a close interest in the deal. “It won’t just be steelmakers who are up in arms about this – it will be car-makers and anyone else that uses steel,” said one industry executive.

BHP, however, believes it has done its homework and can satisfy the competition authorities. Sources close to the company denied, however, that it had agreed a behind-the-scenes, long-term supply deal with the Chinese.

But the sources said it was prepared to sell some iron-ore assets if required, and that there was likely to be a queue of interested buyers.

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