Rio Tinto dismisses debt concerns

Mining heavyweight Rio Tinto (RIO) has shrugged off concerns over its debt position after BHP Billiton (BLT) pulled the plug on its $66 billion takeover plans. The Anglo-Australian group says it is confident of selling off assets including major packaging business, aluminium products, its US coal business, an Australian copper mine and its US Sweetwater uranium mine in the coming months to pay off its $39 billion net debt. Dismissing market rumours that Rio will need to raise equity to meet its debt obligations, chairman Paul Skinner said the group is "confident" with its financial position and is still planning on raising its dividend. It is due to make a $9 billion debt repayment in October 2009. However, Rio's high debt levels were a key factor in BHP losing interest in its rival. Falling metal prices, the ever-worsening global economy and demands from the European competition regulators to sell of some of its iron ore and coal assets also played their part in discouraging BHP. Gary Hobbs of Fortis Private Banking says: "Billiton has stunned the market by announcing that it is walking away from the bid for Rio Tinto, saying the deal is no longer in the best interests of its shareholders. "While the industrial logic for the combination still stands as does the longer term demand story, concerns over the continued deterioration of near term global economic conditions, uncertainty over the duration of the downturn and the associated risks mean that it is not in Billiton's shareholders best interests. [It is] in short a victim of the crash in global markets." Rio's shares lost around a third of their value yesterday and dropped a further 4% today. Last November when BHP first came up with the deal, the all-share offer valued the company at $193 billion - almost three times its current value. But while shareholders were mourning their losses, steelmakers were celebrating the collapse of the deal which could have put them at a significant disadvantage in iron ore pricing. The news comes just before negotiations over the prices for the annual contracts for iron ore kick off. Last year, the miners enjoyed a 96.5% price hike for iron ore amid soaring demand for steel. However, with the global economic downturn impacting sharply upon demand, analysts are predicting falls of up to 40% this time around. Source:Interactive Investor