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Chinalco plans to pump extra US$19.5b in Rio
By Fu Chenghao |
February 13, 2009, Friday
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Print Edition
Print Edition
ALUMINUM Corp of China, the country's top aluminum maker, agreed yesterday to invest a further US$19.5 billion in debt-ridden global miner Rio Tinto, in the nation's largest overseas acquisition.
Chinalco, as the company is known, will acquire stakes in some of Rio's aluminum, copper and iron ore projects for US$12.3 billion and also buy US$7.2 billion worth of bonds convertible into shares, the miners announced yesterday.
As metals prices tumbled, the deal would help state-run Chinalco secure more natural resources supply for China in the long run at a relatively low price, while also offering a lifeline to Rio which is struggling to lower its US$38.9 billion of debt by US$10 billion this year.
Chinalco is already Rio's biggest shareholder when together with Alcoa Inc, it acquired a 12-percent stake in Rio's London-listed stock, or 9 percent in the whole Rio group, a year ago for US$14.1 billion. The bonds, if converted, would lift Chinalco's stake to 19 percent in London-listed Rio Tinto Plc and 14.9 percent in Sydney-listed Rio Tinto Ltd, equivalent to 18 percent in the Rio group.
Chinalco can nominate two non-executive board members to add to Rio's 15 members.
"Our objectives are to seek commodity and geographic diversification, and to achieve long-term returns from our investments," Chinalco President Xiao Yaqing said.
Mysteel.com senior analyst Jia Liangqun said: "Chinalco is getting a good price.
"The new deal could help Chinalco pare some of its huge book loss made from the investment a year ago. The purchase will help China's steel industry in the long run, although it won't have an immediate positive impact on annual contract ore prices. For Chinalco and Rio, the deal is made on the back of the huge market in China."
Rio expects to gain from Chinalco's links within China, which the Anglo-Australian miner believes will stay as the main driver of growth in commodity markets over the long term. Rio and Chinalco will form a joint venture for exploration in China, it said.
"Chinalco's investment will strengthen Rio Tinto's balance sheet, raise our flexibility to deliver growth as markets recover and position Rio Tinto for the next decade and beyond," Paul Skinner, Rio's chairman, said.
Chinalco, as the company is known, will acquire stakes in some of Rio's aluminum, copper and iron ore projects for US$12.3 billion and also buy US$7.2 billion worth of bonds convertible into shares, the miners announced yesterday.
As metals prices tumbled, the deal would help state-run Chinalco secure more natural resources supply for China in the long run at a relatively low price, while also offering a lifeline to Rio which is struggling to lower its US$38.9 billion of debt by US$10 billion this year.
Chinalco is already Rio's biggest shareholder when together with Alcoa Inc, it acquired a 12-percent stake in Rio's London-listed stock, or 9 percent in the whole Rio group, a year ago for US$14.1 billion. The bonds, if converted, would lift Chinalco's stake to 19 percent in London-listed Rio Tinto Plc and 14.9 percent in Sydney-listed Rio Tinto Ltd, equivalent to 18 percent in the Rio group.
Chinalco can nominate two non-executive board members to add to Rio's 15 members.
"Our objectives are to seek commodity and geographic diversification, and to achieve long-term returns from our investments," Chinalco President Xiao Yaqing said.
Mysteel.com senior analyst Jia Liangqun said: "Chinalco is getting a good price.
"The new deal could help Chinalco pare some of its huge book loss made from the investment a year ago. The purchase will help China's steel industry in the long run, although it won't have an immediate positive impact on annual contract ore prices. For Chinalco and Rio, the deal is made on the back of the huge market in China."
Rio expects to gain from Chinalco's links within China, which the Anglo-Australian miner believes will stay as the main driver of growth in commodity markets over the long term. Rio and Chinalco will form a joint venture for exploration in China, it said.
"Chinalco's investment will strengthen Rio Tinto's balance sheet, raise our flexibility to deliver growth as markets recover and position Rio Tinto for the next decade and beyond," Paul Skinner, Rio's chairman, said.
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