UPDATE: Holders Pleased Rio Tinto Dumped Chinalco For Share Issue
June 05 2009 - 6:23AM
Dow Jones News
Rio Tinto PLC (RTP) shareholders Friday welcomed the
Anglo-Australian miner's decision to pursue a $15.2 billion rights
issue over a proposed tie-up with Aluminum Corp. of China, or
Chinalco.
"We are pleased that Rio Tinto have decided to pursue a
conventional rights issue; it is important that companies of
significant standing choose to honor shareholder rights," Legal
& General Investment Management, Rio's biggest institutional
investor, said in a statement.
Investors had objected to Chinalco's proposed $19.5 billion
investment in Rio Tinto. L&G and others complained that it
violated preemption rights - in this case the ability to buy into a
convertible bond on the same terms as Chinalco.
Rio Tinto and Chinalco in February struck a deal that would have
given the Chinese group minority stakes in a suite of assets for
$12.3 billion and convertible bonds valued at $7.2 billion.
Chinalco's stake in Rio would have jumped to 18% from 9%, while
other shareholders would have seen their holdings diluted.
Rio formally abandoned that agreement Friday in favor of the
rights issue and an iron ore joint venture with rival BHP Billiton
Ltd. (BHP).
"We welcome the board's decision to offer shares to existing
shareholders via a rights issue," Robert Waugh, head of U.K.
equities at pension fund Scottish Widows Investment Partnership,
said in an emailed statement.
Waugh in February objected to Rio's decision to issue attractive
equity to one shareholder without offering it to all shareholders.
Scottish Widows is one of the top 15 investors in Rio's
London-listed shares, according to data provider FactSet.
Robert Talbut, chief investment officer at Rio investor Royal
London Asset Management, said the miner likely abandoned the
Chinalco deal because commodity, equity and capital markets had
improved markedly since February, giving the company a broader
array of options to repair its debt-burdened balance sheet.
"I also believe that the view of shareholders around the globe
hardened toward (the Chinalco deal)," Talbut said.
Talbut called the combined rights issue and JV a "good
deal."
"The company when it completes this financing will have great
financial flexibility, still be in a great strategic position and
remain an attractive investment," he said.
Rio Tinto said the funds raised will allow it to reduce its net
debt to $23.2 billion and to meet repayments due this year and next
on debt associated with its $38.1 billion purchase of Alcan in
2007.
Company Web site: www.riotinto.com
-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347;
jeffrey.sparshott@dowjones.com