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Rio Tinto says on track on major asset sales
SYDNEY/MELBOURNE (Reuters) - Global miner Rio Tinto Ltd (RIO.AX) (RIO.L) said on Wednesday it was confident it could sell assets worth billions of dollars to pay down massive debt, despite concerns about a lack of buyers, a day after rival BHP Billiton Ltd dropped a bid for the firm.
BHP's (BHP.AX) (BLT.L) shock decision on Tuesday to pull its $66 billion bid sent Rio's shares plunging by almost 40 percent, amid concerns Rio would struggle to sell assets and cut its $39 billion in net debt during a severe global economic downturn.
Analysts questioned Rio Tinto's confidence it could sell assets in the next few months.
"That's by no means certain," said FW Holst analyst Rob Craigie. "There may be additional assets they would consider selling. But the environment over the next six to 12 months is not going to be a good environment for selling assets."
BHP Billiton cited Rio's debt position in scrapping its hostile bid approach, as well as sliding metals prices, the threat of global recession and demands from European competition regulators to sell off some iron ore and coal assets.
But Rio's chairman, Paul Skinner, speaking at a scheduled business breakfast on Wednesday, said the group was comfortable with its financial position, remained committed to increasing its dividend, and dismissed market speculation Rio would need to raise equity.
He said it would make asset sales in the next few months.
"We now move on. We have a very strong company," Skinner told reporters. "We are confident with our financial position. We have other ways of managing our debt."
Credit rating agency Fitch downgraded Rio by one notch to BBB+ with a negative outlook and removed the company from 'rating watch positive' on Wednesday, citing concerns about its elevated debt levels in a climate of sharply falling commodity prices.
Rival rating agency Moody's signaled a possible downgrade to Rio's high-investment-grade A3 rating, noting that asset sales would be a key focus of its rating review.
Assets on the block include a major packaging business, aluminum products, its U.S. coal business, an Australian copper mine and its U.S. Sweetwater uranium mine.
Rio Tinto spokeswoman Amanda Buckley said the company was focusing on selling the assets flagged, but had no immediate comment on whether it was considering other asset sales.
BHP's Rio bid was hatched last November, as mining boomed on soaring demand for iron ore, steel and other resources from China and other emerging markets. At its peak, the all-share offer valued Rio at about $193 billion, promising to be the second-largest takeover in history.
For offer timeline Graphic, click: here
Rio Tinto shares dropped 34 percent in the first day of trading in Australia after BHP abandoned the bid, nearly matching a slide in its London-listed shares the previous day. Rio's share price was down a further 3.5 percent on Wednesday, trading at 1495 pence in London at 9:49 a.m. EST, when BHP was up 4 percent at 1095 pence.
Fund managers said Rio's slide partly reflected uncertainty over how it would reach its target for asset sales.
"It's obviously not the ideal environment for getting rid of assets right now," said Evy Hambro, manager of the $4.7 billion BlackRock World Mining Fund, which owns both BHP and Rio shares.
But Hambro, who oversees the world's biggest commodity investment fund, said in an interview there were early signs that sliding metals prices could bottom soon.
EYES ON CHINA
Aluminum Corp of China (Chinalco), which in February bought a stake in Rio in a move widely seen as an attempt to win leverage over the bid, said it planned to raise its 12 percent stake to at least 14.99 percent.
But a Shanghai-based metal analyst said it was unlikely Chinalco would buy any Rio assets, saying the Chinese company had no experience operating assets overseas and was not in a position to buy as its profits were falling at home.
"Chinalco does not have the obligation to reduce Rio's debt," Heng Kun said.
Chinalco and its U.S. partner in the stake, Alcoa Inc (AA.N), have lost about $11 billion, or three-quarters of the value, on their investment.
Rio took on debt to finance its $38.1 billion purchase of Alcan in late 2007, and committed to sell $15 billion in assets, including $10 billion this year, but the timeframe has slipped.
"There is clearly a lot to do over the coming months for Rio Tinto," Skinner said. "We have $9 billion debt due October 2009, and we don't see any need to issue equity to meet that."
Analyst Damien Hackett at Canaccord Adams in London said the slide in Rio shares was a "gross over-reaction."
"On our numbers, the entire $42 billion of borrowings can be paid down by 2013 without recourse to asset sales."
BHP will write off about $450 million in bid costs, and is also taking $2.1 billion in pretax write-downs on nickel assets.
Rating agency Standard & Poor's signaled it still might downgrade BHP's A+ rating, partly depending on the company's capital management, acquisition and expansion plans. Moody's, however, raised its A1 rating outlook on BHP to stable, saying BHP no longer faced the risk of a sharp rise in debt.
Fund managers said they did not expect any serious pressure on BHP's chief executive or chairman to quit over the failed bid.
"(CEO Marius Kloppers) has not necessarily made a mistake. But the world has changed and there's little point in destroying shareholder value," said Peter Chilton, analyst at Constellation Capital Management, which has stakes in both BHP and Rio.
(Additional reporting by Mette Fraende in Sydney, Natalie Harrison in London, Steve James in New York and by Reuters bureaus; Graphics by Catherine Trevethan; Editing by Ian Geoghegan, Greg Mahlich)
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