Strong demand for Rio rights

By Denny Thomas and Daisy Ku

SYDNEY/LONDON (Reuters) - Rio Tinto (RIO.AX) (RIO.L) said the British leg of its $15.2 billion (9.3 billion pounds) rights issue had been successfully completed, putting the world's top iron ore miner back in growth mode after slashing its debt.

A 97 percent take-up by investors in London of the heavily discounted rights issue, the second biggest non-financial deal ever, suggested faith in dual-listed Rio has been restored after recent distractions including a hostile takeover approach and soured ties with China, its biggest shareholder.

The remaining 15.9 million Rio Tinto shares -- the "rump" -- were sold on Thursday at 2,100 pence, a 2,7 percent discount to Wednesday's close.

With world stock markets falling after U.S. jobs data, Rio's London shares were down 6.1 percent to 2,027 pence by 3:20 p.m., to be one of the weakest British blue-chip stocks. Its Australian shares closed up 0.3 percent at A$51.75.

With $14.8 billion net proceeds in the bank, Rio can comfortably cover $8.9 billion of debt that needs to be repaid in August and further liabilities in 2010.

But analysts said the mining giant still needs to sell non-core assets to pay down the $38 billion debt it took on to buy Canadian aluminium maker Alcan in 2007.

"It's more like getting back to business," said Mark Daniels, equities director at Aberdeen Asset Management, who oversees A$1.2 billion (584 million pounds) including Rio stock. Aberdeen's Australian fund fully subscribed to the offer.

"It's now about getting the most out of their assets," he said, noting Rio's relatively high exposure to aluminium was a drag. If somebody would like to buy those assets, and offer a reasonable price, then they'd be happy to divest," he said.

The Alcan buy pushed up aluminium's contribution to Rio's underlying profit to about 12 percent, double that of rival BHP Billiton (BHP.AX) (BLT.L).

Australian packaging group Amcor (AMC.AX) is in talks with Rio to buy part of Alcan's packaging business, which could bring in $1.5 billion, Deutsche Bank estimated.

Rio raised 7.34 billion pounds before expenses from the British tranche, more than a fifth of the market value of Rio's London-listed shares.

Results of the Australian offer -- 150 million shares at A$28.29 -- were not yet available, but a banking source said take-up was likely to be similar and any Australian rump would be placed Friday morning.

Banks underwriting the two legs of the rights issue were paid a 2.75 percent fee, or around $420 million in total.

ASSET SALES

"They still have a fair bit of debt they need to work through. So I think they will be still be keen to be pursuing non-core asset sales," said Ross Barker, managing director of Australian Foundation Investment Co, which manages about A$3.5 billion including Rio shares.