* Rio is selling a 29 pct stake in its Coal & Allied
* Partner Mitsubishi unlikely to exercise pre-emptive rights
* Indian firms have been scouting for Australia coal assets
* Deal comes with offtake agreement
By Sumeet Chatterjee and Denny Thomas
MUMBAI/HONG KONG, June 11 (Reuters) - China's state-owned Shenhua Group Corp Ltd and India's Aditya Birla Group are among companies considering bids for some of Rio Tinto Ltd's Australian coal assets, valued at an estimated $3.2 billion, people familiar with the matter told Reuters.
Rio Tinto , led by new chief executive Sam Walsh, is offloading a string of assets to help cut its $26 billion in debt and protect its single-A credit rating. It is also looking to cut its exposure to the coal industry, which has been squeezed by surging costs and a 30 percent slump in prices since early 2012.
This has given potential suitors the opportunity to bulk up on good quality coal assets and secure supply agreements.
Rio Tinto is selling a 29 percent stake in its Coal & Allied business and its majority stake in the Clermont mine in Queensland state, with preliminary bids due this week, one person with direct knowledge of the matter said.
State-run Coal India Ltd, the world's largest coal producer, is also expected to bid, the person said.
Rio Tinto, Aditya Birla Group and Coal India declined to comment, while Shenhua was not available for a comment. Sources declined to be identified as the sale process is confidential.
Japanese trading house Mitsubishi Corp is Rio's 20 percent co-owner in Coal & Allied and also a co-owner in the Clermont mine, along with Japan's Electric Power Development Co Ltd (J-Power) and a consortium of other Japanese utilities.
Mitsubishi has pre-emptive rights to buy the stakes Rio has put on the block, but Mitsubishi is unlikely to exercise those rights as it has said it is not looking to increase its natural resource investments.
The stake in Coal & Allied, which operates thermal coal mines in New South Wales, could fetch around $1.7 billion while the Clermont stake could bring in $1.5 billion, analysts say.
Unlisted Shenhua Group has shown interest in buying coal mines in Australia and was among the suitors for Whitehaven Coal Ltd, a deal that failed to materialise after parties could not agree to terms, people familiar with the matter said.
INDIA'S COAL NEEDS
India's huge appetite for coal is driving the bids by Indian firms. While the country boasts the world's fifth-largest reserves of coal, it still suffers power cuts due to supply bottlenecks and the poor quality of coal delivered to power plants.
The Aditya Birla Group, a telecoms-to-cement conglomerate, is in need of thermal coal for group companies Hindalco Industries Ltd , India's top aluminium producer, and UltraTech Cement Ltd, the nation's top cement maker.
It has been actively looking at overseas coal mines and had previously evaluated bids for Australia's New Hope Corp, Bandanna Energy, and Whitehaven, people familiar with the matter said.
Coal India produces about 80 percent of India's total coal output, but growth has been stymied for years by delays in environmental and regulatory approvals for mining projects.
As of December 2012, Rio valued its total Australian coal assets, which include the Clermont stake and its 80 percent stake in Coal & Allied, at $5.63 billion.
Coal & Allied's valuations are likely to be affected by uncertainty over the future of its Warkworth mine. Rio Tinto is appealing a court decision that blocked a planned expansion of the mine.
"In any case, we believe it is highly unlikely Warkworth will be sold until the issue is resolved," CIMB analyst Michael Evans said in a note last month.
Rio's debt pile is partly due to its $38 billion purchase of aluminium producer Alcan at the height of global financial crisis. It revealed a $14 billion write down in January and sacked CEO Tom Albanese.
Rio Tinto is being advised by Deutsche Bank.