Rio Tinto says can weather storm without BHP (Reuters)

Tuesday, November 25th, 2008 | Finance News

SYDNEY (Reuters) –
Global miner Rio Tinto Ltd sees no need to raise equity and is confident of selling assets soon to pay off debt, its chairman said on Wednesday, a day after rival BHP Billiton Ltd dropped its bid for the firm.

BHP's shock decision on Tuesday to pull its $66 billion bid sent Rio's London shares plunging by almost 40 percent, raising concerns that Rio would struggle to sell assets and bring down its $39 billion in net debt during a severe global economic downturn.

But Rio Chairman Paul Skinner, speaking at a scheduled business breakfast, said the group was comfortable with its financial position, dismissed market speculation that Rio would now need to raise equity and said it would make asset sales in the next few months.

"We now move on, we have a very strong company," he said.

"We are confident with our financial position. We have other ways of managing our debt."

Credit-rating agency Moody's immediately signaled a possible downgrade to Rio's high-investment-grade A3 rating, noting that asset sales would be a key focus of its rating review.

BHP Billiton cited Rio's debt position in scrapping its hostile bid approach, as well as sliding metals prices, the threat of global recession and demands from European competition regulators to sell off some iron ore and coal assets.

"The greater debt exposure of the combination, plus the difficulty of divesting assets, have increased the risks to shareholder value to an unacceptable level," BHP Chief Executive Marius Kloppers said in a statement.

BHP's Rio bid was hatched last November, as mining boomed on soaring demand for iron ore, steel and other resources from China and other emerging markets. At its peak, the all-share offer valued Rio at about $193 billion, promising to be the second-largest takeover in history.

A sigh of relief swept through the loan market because BHP would no longer need a $55 billion loan, the biggest ever to be underwritten in Europe, it had arranged to refinance Rio's debts once it had completed the takeover.

BHP shares jumped more than 7 percent in London trading, while Rio Tinto closed down 36.7 percent.

EYES ON CHINA'S NEXT MOVE

Global steel industry officials welcomed the bid's collapse. They had feared a merged BHP-Rio would control more than a third of the world's seaborne trade in iron ore, the main raw component in steel, would have too much clout over pricing.

Aluminum Corp of China (Chinalco), which has a stake in Rio in a move widely seen as an attempt to win leverage over the bid, said it planned to raise its 12 percent stake to at least 14.99 percent.

Chinalco's U.S. partner in the stake, Alcoa Inc, had no immediate comment, but noted the companies previously said they wanted to increase their stake in Rio.

Rio's Skinner said on Wednesday the company was not courting outside investors and had never done so with Chinalco.

Prices of major world commodities such as copper and iron ore have halved in the five months since peaking in July.

But Skinner said Rio, which took on debt to finance its $38.1 billion purchase of Alcan in late 2007, was still confident of making major asset sales in the next few months. It had planned to sell $15 billion in assets after the Alcan purchase, including $10 billion this year, but the time frame has slipped.

"There is clearly a lot to do over the coming months for Rio Tinto," Skinner said. "We have $9 billion debt due October 2009, and we don't see any need to issue equity to meet that."

BHP will write off about $450 million in bid costs, and is also taking $2.1 billion in pretax writedowns on nickel assets, leaving BHP's CEO and chairman under pressure.

(Additional reporting by Mette Fraende in Sydney, Sonali Paul in Melbourne, Natalie Harrison in London, Steve James in New York and by Reuters bureaus; Writing by Mark Bendeich)

(Editing by Jonathan Standing)

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