Rio Tinto has raised $3.5bn (£2.3bn) from fixed-rate bonds to help pay down its $40bn debt pile—but the sale is not related to the controversial $19.5bn tie-up with Chinalco, China's state-owned aluminium company, the mining giant said yesterday.
The debt sale in advance of yesterday's annual meeting was simply to take advantage of bond markets back open for business, and does not imply any weakened commitment to the proposed Chinalco deal that has caused a stir among some shareholders, according to the company.
Tom Albanese, Rio Tinto's chief executive, said: "We remain committed to delivering the Chinalco transaction and our focus is on successfully navigating the regulatory processes before putting it to a shareholder vote."
The London and Sydney-listed company also published first-quarter production figures yesterday showing the continued impact of the global recession on the commodities sector. Iron ore production is down by 15 per cent year on year and aluminium production is down 6 per cent.
Mr Albanese said: "First-quarter production was in line with reduced market demand, and iron ore was further affected by heavy rains. We have acted swiftly where necessary to reduce costs and conserve cash. Markets remain volatile and the timing of global economic recovery uncertain."
The deal with Chinalco, announced in February, includes $7.2bn worth of convertible bonds and an investment of $12.3bn in some of Rio's iron ore, copper and aluminium assets. Once the bond is exercised, the Chinese group's stake will double from 9 to 18 per cent—causing furore among some shareholders that their pre-emption rights are being overridden.
Rio's executives maintain that the deal gives the company an advantage in the developing world, not least China itself. But the main motivation is to solve the company's vast debt issues, incurred with the purchase of Alcan, the aluminium group, for $40bn at the top of the market in 2007. The Chinalco deal will not only pay off the $8.9bn slice of the debt that is due this year, but also the $10bn due in 2010.
This week's bond sale, the first for a year, will certainly help. The financing arm, Rio Tinto Finance, saw strong demand for $2bn worth of five-year and $1.5bn worth of 10-year securities. The former pays a coupon of 8.95 per cent and the latter 9 per cent.
Guy Elliott, the chief financial officer, said: "With the bond markets open for business, it makes sense for us to be taking advantage of the opportunity. This issue is part of 'business-as-usual' capital management and the normal process of terming out existing debt facilities."
While Rio's board maintains its commitment to the Chinese deal, the company does have a "plan B". If the Australian regulator rules against the proposal, or it is voted down by shareholders, Rio will launch a $10bn rights issue to meet this year's debts.