Rio Tinto Confident Alcan Bid Can Beat Credit Crunch

The debt crisis gripping global markets could raise the cost of Rio Tinto's $38.1 billion debt-funded offer for Alcan, but analysts say the deal is not under threat. At a time when risk is being repriced and lenders are drying up, Rio Tinto's underwriters are in the market trying to sell $40 billion of debt into European markets. The Alcan deal is not conditional on finance and analysts don't believe the credit crunch jeopardizes the offer, but they say it is likely to mean the cost of servicing the huge debt will rise. "That would impact on earnings and affect valuation in that sense, but it is not going to be a deal-breaker by any means and Rio Tinto has more than ample capacity to handle it," one analyst said. Rio's loan is underwritten by Royal Bank of Scotland, Deutsche Bank AG, Credit Suisse and Societe Generale, all of which now face the challenging task of finding European buyers for the debt. State Street Global Advisors' head of fixed income and cash, Stephen Nash, said Rio Tinto would be best to put off the debt raising until the current turbulence has passed. "In terms of debt pricing, this is not the time to be thinking about a major trade on that sort of scale," he said. A lack of liquidity is the key to the current crisis, but this will pass, Nash said, and Rio would be prudent to back off and wait. However, Rio said is pressing on and said it is progressing well. "Rio Tinto's debt raising for the Alcan deal is well advanced and running well on plan," a company spokeswoman told Dow Jones Newswires. Rio chairman Paul Skinner has said the current crisis has sparked a "flight to quality" and that buyers are lining up to act as lender to the mining giant.