Global miner Rio Tinto still lacks a clear plan to cut its whopping $39 billion debt load, even after backpedalling last week and admitting it was considering an equity cash call.
Even if Rio opts for the rights issue, it will still have to offload around $2 billion worth of assets to meet its goal of paying down $10 billion of debt by the end of this year, analysts and dealmakers say.
At issue is continued uncertainty about what's up for grabs and what isn't -- after bigger rival BHP Billiton withdrew a $66 billion bid in November and left it scrambling -- and Rio's insistence on getting good prices while global commodity markets plunge and there is no turnaround in sight.
Case in point: Everything from aluminium and copper assets to rights issues and convertible notes are under consideration in a possible $10-$20 billion deal with Chinese aluminium king Chinalco, in talks disclosed on Monday.
Chinalco, Rio's biggest shareholder and parent of listed arm Chalco, has said it plans to raise its 9 percent stake in Rio to 14.99 percent, the most allowed by Australia's Foreign Investment Review Board.
But days before Rio's second-half earnings are due, few sealed deals have emerged.
And the clock is ticking.
The miner is scheduled to pay down $8.9 billion in debts due in October, just under a quarter of the $38 billion it paid in 2007 for Canadian aluminium group Alcan when commodity markets were soaring.
Analysts now say the possible equity sale shows Rio no longer seems convinced it has to pull itself apart to survive.
That's probably why they're thinking they want Chinalco to throw $10-$12 billion at them so they can get a partner on board and not have to sell anything, said James Wilson, an Australia-based analyst at DJ Carmichael.
To be sure, Rio has let go of some quality assets in its diverse portfolio as the global financial crisis erodes confidence in a price recovery this year.
Last week, the miner announced the sale -- at fair prices, analysts say -- of potash assets for about $850 million and its Corumba iron ore mine in Brazil for $750 million to rival Vale.
Prior to that, it had sold $3.1 billion in assets, including its half stake in a Chinese aluminium smelting business.
Still, Rio's borates and talc businesses -- expected to fetch around $1.2 billion -- have lingered on the block for a year with interest from Chinese and private equity firms, but no formal deal has been announced, despite bankers saying bids are imminent.
And analysts say Rio's 76 percent stake in Australia's Coal & Allied Industries, worth over $3.7 billion, and its stake in uranium miner Energy Resources of Australia, could be up for grabs -- though Rio has quashed the speculation.
A Hong Kong-based resources investment banker, who declined to be named due to the sensitive nature of the process, told Reuters the profitable Coal & Allied asset should sell easily.
It's attractive enough to buy, it falls in the middle, the banker said, explaining that it fell into the sweet spot of being a strong, desirable asset but not a jewel in the crown that Rio must have to survive.
Despite the asset sale plans, Rio has almost $7 billion in unused credit facilities, of which $4.6 billion was left over from earmarked funds for its Alcan buy.
NO FIRE SALES
Rio announced in December sweeping plans to cut 14,000 jobs and halve its capital spending -- an admission that holding out for higher bids for disposals will not be enough to cure its ailing balance sheet.
But, on the sidelines of the World Future Energy Summit in the United Arab Emirates on Jan. 19, Preston Chiaro, chief of Rio's energy and mining unit, told Reuters Rio will not rush to sell U.S. coal mines and will wait for the right price.
We have put up four of our five (coal) mines in the U.S. for sale over a year, but there are no buyers, Chiaro said. We will hang on to them, they are profitable and safe, we will not sell for a bargain price.
Chiaro added Rio has no plans to sell its majority stakes in Energy Resources and the Rossing uranium mine in Namibia.
The problem is in this market they are unlikely to realise some of the prices and I think that's what makes them 'off limits', said Matthew Whittall, Asia Resources Analyst at CLSA.
To the extent that Rio is willing to compromise on price will determine whether those assets can actually be sold in the market. (Additional Reporting by Stanley Carvalho in ABU DHABI and James Regan in SYDNEY) (Editing by Ian Geoghegan)
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