Rio Tinto's top investors will support rights issue

The shareholders, who have been against the $19.5bn deal with Chinalco since it was announced, have called the company and its advisers promising Rio a cash injection “tonight”. One insider said: “Investor demand is huge. The company could raise as much as it wants. This wasn’t possible as recently as a couple of months ago, it is now.” The calls from shareholders follow speculation that the Chinalco deal is to be scrapped. Sources said that Rio was instead planning a smaller rights issue and a potential joint venture with rival BHP Billiton over its iron ore assets. Rio, which needs a cash injection to clear its debt burden including a $10bn repayment due this year, has maintained that the reason for pursuing the Chinese deal was because investors could not stump-up enough cash. One top investor said: “We’ve got the cash, we’ve said we ready to use it now. The company doesn’t even need to sell assets to BHP. We’re ready.” There is also speculation that Middle Eastern investors wanted to get involved in Rio’s refinancing. But sources said the company will not risk rail-roading institutional pre-emption rights a second time. Rio said in a short statement in London that it noted the press speculation and was “pursuing a range of options” for improving its capital structure. It said “a further announcement will be made in due course”. However, it made no mention of Chinalco, which unsettled investors. One observer said that in the past Rio has always stressed its commitment to Chinalco and the deal. Chinalco has been struggling to reach an agreement that would enable the deal to be cleared by the Australian government. There has been opposition from politicians and Rio Tinto shareholders. Australia’s Foreign Investment Review Board is due to give its recommendation on the deal to Treasurer Wayne Swan by June 14. Mr Swan has the final say on whether it will go ahead. Rio pushed out the announcement after the Financial Times reported that Chinalco was ready to walk away from the deal. However, other sources claimed it was Rio Tinto which had decided to pull out. Under the terms of the deal, Chinalco agreed to take its stake in Rio Tinto from 6pc to 18pc, while at the same time buying up to 14pc of Rio Tinto’s Australian-listed shares. A large convertible bond, sold either to the Chinese company or a third-party investor was set to be issued alongside the equity raising, with a third tranche of investment coming from the sale of stakes in some of Rio’s mining assets and supply contracts. Plans for an emergency rights issue, overseen by JP Morgan Cazenove, were also readied weeks ago in the event the deal with the Chinese falling through. source：www.telegraph.co.uk