Rio Tinto mulls $8 billion rights issue as 'Plan B'

07 April 2009

Debt-laden global mining major Rio Tinto is considering an $8 billion (A$11.2 billion) rights issue as an alternative option, if Chinese aluminium giant Chinalco's proposed $19.5-billion stake increase in the company is turned down by the Australian government.

Investment banks JP Morgan Cazenove and Credit Suisse had agreed to underwrite the rights issue, after the company's annual results were announced in February. Earlier, Rio's chief financial officer Guy Elliot hinted in Singapore that the company had a ''Plan B'' in place, should the Chinalco's deal be blocked by Australian regulators or shareholders.

The recent success of HSBC's largest-ever rights issue in Britain and bond issue by Anglo American has prompted Rio to reevaluate the possibility of a rights issue as an alternative in case the Chinalco deal fails.

HSBC, one of the world's largest banking entities, raised $17.7 billion through the rights issue which was offered at 41 per cent discount to the last traded price.

Anglo American, another global mining giant with an identical BBB rating on negative watch from Standard & Poor's as Rio Tinto, raised $2 billion through bonds. BHP Billiton, which has a higher credit rating too tapped the bond market to raise $3.25 billion in March.

Rio Tinto's debt burden increased to a whopping $38.7 billion after it bought Alcan, the Canadian aluminium major in 2007. The company is hunting for a lifeline as the $9 billion debt payment is due in October this year and $10.5 billion by the end of 2010.