Chinalco Said to Buy 880 Million Pounds of Rio Shares

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30 Jun 2009

Aluminum Corp. of China plans to buy 880 million pounds ($1.5 billion) of Rio Tinto Group stock, taking its share of a rights offer by the world’s third-biggest mining company, said two people familiar with the matter. Chinalco, as the state-owned entity is known, may buy about 63 million new shares in Rio, said one of the people, who didn’t want to be named because the transaction is confidential. London-based Rio is selling $15.2 billion of stock in the U.K. and Australia to help pay debt.
The sale would allow Beijing-based Chinalco to retain its 9 percent stake after its proposed $19.5 billion investment in Rio, the single largest foreign investment by a Chinese company, was rebuffed. Rio instead opted to sell shares and agreed to form an iron ore venture with BHP Billiton Ltd.
China is “always talking about access to resources like iron ore, copper and aluminum over the long term,” said Rebecca O’Dwyer, an analyst at Investec Securities in London who rates Rio a “hold.” “So to let yourself be diluted today because the larger deal was rejected would be very short-sighted.”
Rio is offering existing shareholders the right to buy 21 new shares for every 40 they hold at 1,400 pence for its London shares and A$28.29 for its Sydney shares. The offer is scheduled to close at 5 p.m. Melbourne time July 1, according to company filings.
Declined to Comment
Shares of Rio in Sydney fell 1.4 percent to A$50.27 on the Australian stock exchange at the close. The London stock fell 0.1 percent to 2,057.5 pence as of 11:11 a.m. Beijing-based Chinalco Vice President Lu Youqing and Rio spokesman Ian Head in Melbourne declined to comment today.
Rio is issuing 524 million new shares traded in London, representing about 52.5 percent of its existing share capital and 34.4 percent of the enlarged share capital traded in London, according to a statement. The offer, valued at $15.2 billion, would help Rio pay down some of the $38.9 billion of debt.
China, the largest consumer of industrial metals and coal, is also still hunting for access to natural resources. State- owned China Minmetals Group received approval on June 11 from shareholders of OZ Minerals Ltd. to buy $1.39 billion of mining assets from the Australian company.
Mining M&A
The value of mining mergers and acquisitions peaked at $596.8 billion in 2007, according to data compiled by Bloomberg, before collapsing as plunging commodities and the credit crisis curbed funding for deals. While transactions totaled just $122.5 billion in the first half of this year, metal prices have rebounded on predictions of a global economic recovery.
Xstrata Plc, based in Zug, Switzerland, last week said it will continue to seek talks with rival mining company Anglo American Plc over its proposed “merger of equals.”
“We continue to believe Rio Tinto, and BHP for that matter, are more attractive to Chinese buyers than companies like Anglo American and Xstrata because of the commodities that they offer, such as iron ore, copper and aluminum,” O’Dwyer said.
Chinalco and Alcoa Inc. in February last year paid 7.2 billion pounds, or 6,000 pence a share, for a stake in Rio Tinto, which then was seeking to thwart a hostile bid from BHP Billiton. Chinalco later bought Alcoa out of its stake in the Rio holding.
BHP abandoned its $66 billion offer in November citing Rio’s high-level of debt and declining commodity markets.
Credit Suisse Group AG, JPMorgan Cazenove Ltd., Deutsche Bank AG, Morgan Stanley and Macquarie Capital Ltd. are the joint global coordinators on the rights offer.

Source: Bloomberg