Rio Tinto considers share issue

MELBOURNE/LONDON – Miner Rio Tinto confirmed it may issue shares to help pay off US$39 billion in debt and analysts said heavily indebted rival Xstrata might have to do the same.

Rio’s shares in London slid six per cent to 1,540 pence as investors bet it might have to raise about US$5,3 billion from a rights issue. Media reports have speculated the group might raise as much as US$7 billion.Xstrata shares were down 9,8 percent to 618 pence, as both underperformed a 2,1 per cent fall in the UK mining index.’They (Rio) will have to continue to sell assets, there’s no doubt about that, even with a rights issue. But it would put them in a better position,’ said Tim Barker, resources analyst at BT Investment Management, which owns Rio Tinto shares.Rio said yesterday it was looking at all options, including an equity raising, back pedalling after Chief Executive Tom Albanese had previously said that there was no current need to sell shares to meet the firm’s target to cut debt by US$10 billion this year.’In order to preserve maximum flexibility for the group, the boards do not rule out the potential to issue equity as one of the options it has available,’ the company said in a statement.The world’s third biggest diversified mining group by market value has faced persistent rumours it might need to sell shares as it struggles to sell more assets to pay off debt.Rio has announced several measures to reduce debt, including cutting jobs, slashing capital spending and expanding asset sales after bigger rival BHP Billiton scrapped a US$66 billion takeover bid, blaming Rio’s debt levels and sliding metals prices.Rio has US$8,9 billion in debt due in October 2009 and US$10 billion due in October 2010.The company had aimed to sell US$10 billion worth of assets last year, including its US coal business, as it tried to pay down debt it took on with its US$40 billion takeover of Alcan in 2007.Investors might warm to the idea of a equity issue since the company could be re-rated if the market was less worried about its capital structure, outweighing dilution from more shares, said analyst Michael Rawlinson at Liberum Capital in London.A rights issue was still regarded by Rio as a last resort, with debt refinancing also a possibility, he said. – Nampa-Reuters