RIO TINTO, the global mining combine, is in talks to raise up to $9 billion (£6.1 billion) from Chinalco, the state-owned Chinese aluminium giant.[Article source @ end]
The investment, if successful, will mark one of China’s biggest strategic overseas investments outside the financial sector. It would also demonstrate the country’s financial muscle at a time when the western world is at its most vulnerable.
The capital injection is intended to address growing concerns in the market about Rio’s ballooning debt. While there is no certainty the Chinalco talks will be successful, it is hoped they will be completed by the time Rio announces its year-end results on February 12.
The plan is for Chinalco to buy minority stakes in some of Rio’s most valuable mining assets. The Chinese company is also in discussions to increase its shareholding in Rio from 11% to at least 15%. This could be done through a share placing that could raise about $1 billion.
The outcome of the talks is dependent on what value is put on the mining assets. Rio is thought to be holding out for a premium price to reflect the future value of the mines.
Tom Albanese, Rio’s chief executive, and Paul Skinner, the chairman, are believed to be working on dual fundraising plans. If terms cannot be agreed with Chinalco, Rio will go direct to its investors to raise $9 billion in a rights issue.
Last week the company saw Xstrata raise $4 billion, which despite concern over a share and asset swap with its biggest investor, Glencore, will be taken up. This concern was raised by the corporate-governance arm at Scottish Widows. But Xstrata’s chief executive met seven of his big investors on Friday and it appears that most questions over the deal have now been answered.
Last year, when Rio faced a hostile bid from rival BHP Billiton, Chinalco paid more than £7 billion to acquire an 11% stake. The Chinese company is now sitting on a big paper loss on this investment, but a deal with Rio will allow it to acquire assets at the bottom of the commodity cycle.
The attraction for the Chinese in buying minority stakes is to guarantee the future supply of commodities. Rio has a big exposure to iron ore, a key ingredient needed to make steel. It also has big interests in coal and aluminium.
Skinner and Albanese have set a target to cut total borrowings of £27 billion by £7 billion this year. Last week Rio announced that it had raised more than £1 billion by selling a clutch of South American operations. The company agreed a deal to offload potash and iron-ore assets to the Brazilian mining giant Vale.
0 comments
Post a Comment