Rio Tinto may sell some business units to pay for Alcan purchase

Rio Tinto Group may sell some of its business units to pay off debt after it completes its $38.1 billion acquisition of Alcan, the chief executive of Rio, Thomas Albanese, said Sunday. Rio, which has already signaled it intends to sell Alcan's packaging business, will consider divesting other units or assets of the combined company, Albanese said on Australian Broadcasting Corp. television. He did not say which units may be sold. Rio Tinto's debt-to-equity ratio will increase to "a pretty high level" of 64 percent after the acquisition, the company's finance director, Guy Elliott, said Friday. Moody's Investors Service, which estimates that Rio may borrow as much as $40 billion to finance the bid, has placed the company's $1.3 billion of rated debt on review for possible downgrade while it awaits developments on plans to reduce borrowings. "It is not surprising, to hive off some of their lower-margin businesses and hopefully use that to immediately pay back some of the debt burden," said Alfred Wong, a fund manager at UOB Asset Management in Singapore. "It makes sense for the group to re-look at the business, post the deal." Albanese is making the biggest acquisition in the history of the mining industry just two months after taking over at Rio Tinto. The cash offer overwhelmed a hostile bid for Alcan by Alcoa, and completion of the deal would create the world's largest aluminum producer. "We will be looking at the full range of Rio Tinto businesses in the new, larger Rio Tinto," Albanese said. He said he may sell units that "don't quite fit" or would be more valuable in the hands of another company. Rio plans to sell Alcan's packaging business to focus on the company's so-called upstream business of mining bauxite and alumina and smelting aluminum. The packaging business may bring "several billion" dollars, and further asset sales may bring the total into "double-figure billions," Elliott said. The company also may consider selling new shares, he said. Rio may sell low volume, highly cyclical businesses, like its industrial minerals group, Wong of UOB said. The division, which produces borates, talc, industrial salt and titanium dioxide feedstock, contributed $243 million to the company's earnings last year, according to Rio's Web site. Earlier this month, Rio sold part of its stake in Richard Bay Minerals, the world's biggest titanium operation, in South Africa. Buying Alcan will quadruple Rio's aluminum output and enable it to replace Rusal of Russia as the world's biggest producer of the metal. Worldwide demand for aluminum will continue to increase, driven by China and India, Albanese said. Aluminum "is very much going to benefit as we see China continue to grow, and grow, and grow," he said. The Chinese economy will expand at "a very robust level" of about 9 percent annually until 2015 and continue at "a healthy growth rate" from there onward, he said. India's period of growth is about five years behind that of China, he said.