Capital Markets

Rio Tinto Gets $19.5B Infusion from China

Chinalco investment gives some liquidity breathing room to a company saddled with $39 billion in debt from a prior acquisition.
Stephen TaubFebruary 12, 2009

The Aluminium Corporation of China has agreed to invest $19.5 billion in Rio Tinto, a deal that gives the mining giant desperately needed liquidity and provides China access to a major supply of natural resources.

Under the deal, the Chinese company, also called Chinalco, will invest $12.3 billion in aluminium, copper, and iron ore joint ventures. In addition, Rio Tinto will issue $7.2 billion of subordinated convertible bonds. If they’re converted, Chinalco’s stakes would increase to 19 percent in the company’s U.K. operation, Rio Tinto plc, and 14.9 percent in Australian subsidiary Rio Tinto Ltd.. Combined, it would be an 18 percent ownership position.

The deal “raises significant funds at a time when financial markets are distressed, materially reducing Rio Tinto’s indebtedness, strengthening its balance sheet, and increasing its flexibility to pursue attractive investment opportunities throughout the cycle,” Rio Tinto said in its announcement.

Rio Tinto has $39 billion in debt from its purchase of Canada’s Alcan in 2007. In November 2008, BHP Billiton dropped a $66 billion hostile bid for the company.

Chinalco’s investment agreement gives it the right to nominate two new non-executive board members. Rio Tinto retains operational control of the joint venture assets.