Some bankers rue lost fees after Rio-Chinalco deal

SYDNEY (Reuters) - The announcement of China's biggest overseas corporate investment on Thursday may have brought cheer to a clutch of investment bankers who facilitated it, but to another group, it was a blow.

Equity capital-market bankers are lamenting the loss of about $360 million in potential earnings from global miner Rio Tinto's move to forge a $19.5 billion deal with Chinalco and effectively kill an alternate plan to raise cash through an equity issue.

Advisers to Rio, who had helped it ward off last year's $66 billion takeover bid by bigger rival BHP Billiton, were readying for a rights issue from Rio that would have raised up to $12 billion and paid them 3 percent of that in underwriting fees.

Rio's comments that it was considering an equity issue as part of a plan to reduce its massive debts had kindled hopes of big fees for the advisers -- Morgan Stanley, Credit Suisse, Macquarie Group Ltd and Deutsche Bank -- who were expecting to underwrite the issue.

Those hopes are now dashed after Rio agreed to a cash injection from China's state-owned Chinalco in the form of asset sales and convertible bonds to cut its debt. [nSYD423671]. [nRIO].

Rio owes $38.7 billion as debt and has to repay $8.9 billion by October 2009 and $10 billion in 2010. So the deal with Chinalco eases any immediate need for Rio to raise funds from the capital market.

"It certainly is a missed opportunity for banks who were hoping on a big fee bonanza," said one banking source, who has advised Rio in previous transactions but was not involved in the Chinalco deal. The source declined to be identified as he was not authorized to speak to media.

"But there is still a lot of water to go under the bridge yet ... there could be counter bidders (for assets) and shareholder pressures. I think banks will still be working on a share sale," the source added.

DUAL-LISTING CHALLENGE

Despite the optimism from the bankers, a rights issue would not have been easy to execute due to Rio's dual listing in the Sydney and London stock markets. The rights issue would have been the first from any dual listed company.

The huge size of the likely offering triggered hope even in bankers advising BHP on its doomed bid for Rio. They fancied participating in the issue as joint lead-managers.

"Syndicates for these deals are pretty big and that would assume there would be lots of banks involved, so they could have been on both sides of the fence," said one banker close to BHP.

In Rio's deal with Chinalco, Morgan Stanley and Credit Suisse advised Rio, while JP Morgan, Nomura, Blackstone and CICC were advisers to Chinalco. Rio will be liable to pay a fee of $195 million to Chinalco if the deal collapses.

The bankers, however, are unlikely to suffer lasting damage from Rio's move as they are being kept busy by a flurry of capital raisings from Australian companies this year.

From Qantas Airways Ltd to Westfield Group, companies have announced plans to raise about A$9 billion in the first six weeks of 2009 as difficult credit markets are forcing them to tap equity capital.

(Editing by Muralikumar Anantharaman)