BHP, Rio Tinto Could Raise Up to $21 Billion for M&A, BofA Says

  • Sales may hasten distress of rivals including Anglo, Fortescue
  • Miners decline in London, with BHP falling most in two months

BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest mining companies, could sell as much as $21 billion of shares to help them buy assets from distressed industry rivals, said analysts at Bank of America Corp. Mining stocks slumped on Wednesday.

“The ‘blue chip’ large cap miners, i.e. BHP and Rio, could consider raising equity to be ready to acquire distressed tier-one assets,” analysts led by Jason Fairclough wrote in a note to clients. “We think there is no time like the present. Strengthening balance sheets would give flexibility if/when tier-one assets come to market.”

BHP could raise as much as $15.4 billion and Rio $5.7 billion to curb reliance on debt, the analysts said. In London trade Wednesday, BHP slid as much as 7 percent, the most in two months, and Rio Tinto sank 6.2 percent to a more than six-year low as concerns over weakening growth in China spurred losses in global stock markets. The Bloomberg World Mining Index of 80 companies fell 1.7 percent to the weakest in seven years.

A Rio spokesman and BHP spokeswoman declined to comment.

Miners are being battered by headwinds from slowing growth in demand from China, their biggest customer, and gluts in commodities like copper and iron ore. That has forced most to scrap dividends and sell assets. Smaller rivals to BHP and Rio such as Glencore Plc and Freeport McMoran Inc. have already sold shares to strengthen their finances.

“A capital raise by ‘blue chip’ players in the space might hasten the onset of distress of other more leveraged companies” including Anglo American Plc, Fortescue Metals Group Ltd. and Teck Resources Ltd., Bank of America said.

“Our discussions with investors suggest that there may be a limited pool of equity available for recapitalizations,” the analysts wrote. “If ‘blue chips’ were to move early, it might make it more difficult for other lower quality, more leveraged companies to access equity markets,” allowing the stronger miners to buy assets or competitors.

BHP fell 5.6 percent to 704.3 pence and Rio dropped 4.7 percent by 2:44 p.m. in London. Anglo tumbled 5.9 percent and Glencore 3.8 percent.