Rio Completes $15.2 Billion Share Sale to Cut Debt

By Rebecca Keenan

July 3 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, completed this year’s second biggest share sale, reducing the high level of debt that forced it to consider selling stakes in its most valuable assets.

London-based Rio today finished a $15.2 billion share sale to existing holders, selling 95 percent of the Australian-traded shares on offer, Rio said today in a statement. Yesterday, 97 percent of its London-traded shares were sold in the offer.

Rio scrapped a $19.5 billion investment proposal from its biggest shareholder Aluminum Corp. of China last month in favor of raising $21 billion from a share sale and an iron ore joint venture with BHP Billiton Ltd. The deals allowed Rio to reduce $38.9 billion of debt without selling bonds and stakes in its largest mines, defusing a backlash from politicians and shareholders.

“Rio has ended up with the best deal they could have done,” said Don Williams, who helps manage A$1.1 billion ($876 million) as chief investment officer at Platypus Asset Management Ltd, including BHP and Rio stock. “They got there in a very convoluted manner unfortunately. It is definitely investment grade again.”

Rio shares declined 4.2 percent to A$49.60 at the 4:10 p.m. Sydney time close after the balance of shares not bought by existing Australian holders were sold at A$48.50. The 15.9 million U.K. shares not taken up were priced at 2,100 pence, Nick Cobban, a Rio spokesman in London, said yesterday by phone. That compared with the rights price of 1,400 pence for the London shares and A$28.29 for its Sydney shares.

Debt Cut

Rio will cut its debt to $23.2 billion once it receives the $5.8 billion payment from BHP to create the 50-50 venture. BHP abandoned its $66 billion hostile takeover bid for Rio in November, partly because of Rio’s high-level of debt.

Rio is cutting jobs and trying to sell assets to help repay $10 billion of debt this year. Most of its borrowings were incurred mainly through the 2007 purchase of Alcan Inc.

The deal Chief Executive Officer Tom Albanese, 51, brokered with Chinalco, as the Chinese company is known, was criticized by Legal & General Group Plc, the third-largest investor, and the Association of British Insurers, for not giving them the option to participate in the fund-raising. It also spurred a Senate inquiry in Australia.

Not Neutered

Rio last month dropped the deal with Chinalco, which was agreed in February, after the improvement in financial markets and Jan du Plessis took over as chairman in April. Rio turned to du Plessis after prior chairman nominee Jim Leng resigned less than a month following his appointment because of a disagreement about how to cut debt.

“Leng walking actually made the board sit up and take notice,” Williams said. “ The Chinalco deal would have achieved similar balance sheet results but it neutered them strategically to some extent. I don’t think any shareholders felt comfortable having a major customer sitting on the board.”

At $15.2 billion, the rights offering is the second-biggest this year after HSBC Holdings Plc, which sold $18.3 billion of stock in April. Chinalco confirmed yesterday that it took up its rights in the share sale.

Credit Suisse Group AG, JPMorgan Cazenove Ltd., Deutsche Bank AG, Morgan Stanley and Macquarie Capital Ltd. are the joint global managers of the rights offer. Credit Suisse and JPMorgan, as underwriters of the share sale, will seek buyers for the balance of London-listed Rio shares not bought by shareholders.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net