Bids for Rio unit due in September

First round bids for Rio Tinto's Alcan Engineered Products unit are expected in September as the company comes under pressure from its banks to step up asset sales to repay debt, banking sources said on Friday. Rio Tinto pledged to make $15 billion of asset sales in order to part-refinance a $40 billion loan that it took in December 2007 to fund its purchase of Canadian aluminium manufacturer Alcan. Rio Tinto, which is also fighting off a hostile bid from BHP Billiton, issued the information memorandum on the sale of its Engineered Products unit two weeks ago after Deutsche Bank and Rothschild were appointed to advise, two bankers said. The price tag for the unit is expected to be in the region of $5 billion and one banker said the sale has attracted a handful of private equity sponsors, with some trade buyers also expected to show interest. Rio Tinto's lenders have been disappointed by the lack of progress on the company's planned asset sale programme, which is designed to reduce their exposure and would allow them to recycle increasingly scarce and expensive capital. Rio Tinto pledged to sell $10 billion in 2008 and $5 billion thereafter, but has sold less than $3 billion of businesses to date. Rio's Chief Executive Tom Albanese said last November the group's US coal unit, talc and borates businesses, Alcan's engineered products and packaging divisions, the Northparkes copper mine in Australian and Rio's Sweetwater and Kintyre uranium assets were on the block. Rio Tinto has revived the sale of its Alcan Packaging unit, after a sale to Sealed Air fell through last year when the credit crisis hit its ability to raise debt. "Buyers just couldn't get the financing to back acquisitions," one senior banker said. As part of the disposal programme, Rio also filed for an IPO of its North American thermal coal unit in early August and was also considering other ways of selling the business. The company, which raised $5 billion in a fixed rate bonds issue in June to part-repay the $40 billion loan, said it aimed to repay debt through its cashflow and asset disposals and would term out its debt as the opportunity arose. MANAGEABLE DEBT Although the $5 billion sale of the Engineered Products unit is a large transaction to finance in today's difficult loan market, bankers say that a hefty equity contribution would reduce the debt to a manageable size. "If the valuation of the business is around $4 billion, and there's a 40-50 percent equity contribution then you're looking at around $2-2.5 billion in debt, which seems like a reasonable level," one of the bankers said. Alcan Engineering Products manufactures a range of mostly aluminium or composite products for industries ranging from autos to aerospace. Rio Tinto is due to release first half earnings in late August. --Reuters