Rio Tinto, Vedanta and other resource firms rush to sell bonds

Rio Tinto, Vedanta and other resource firms rush to sell bonds
Comment E-mail Print Share
First Published: Tue, Jun 24 2008. 11 03 PM IST

Refinancing debt: Rio Tinto Ltd headquarters in Melbourne, Australia. (Photo: Carla Gottgens/Bloomberg)
Refinancing debt: Rio Tinto Ltd headquarters in Melbourne, Australia. (Photo: Carla Gottgens/Bloomberg)
Updated: Tue, Jun 24 2008. 11 03 PM IST
Hong Kong: Mining groups Rio Tinto and Vedanta Resources Plc. are set to sell as much as $5 billion in dollar bonds, part of an expected rush of resources firms seeking to raise funds in debt markets.
Companies in the sector are seeking to refinance existing debt, a chunk of it which is tied to acquisitions, and raise capital, as a boom in commodity prices sparks consolidation and lifts profits in the sector, analysts said.
Refinancing debt: Rio Tinto Ltd headquarters in Melbourne, Australia. (Photo: Carla Gottgens/Bloomberg)
Rio Tinto and Vedanta bond sales would follow Singapore-listed commodities firm Noble Group Ltd, which raised $500 million in bonds in May.
Though sentiment is still weak in global credit markets, regional bond spreads have recovered significantly since widening to record spreads in mid-March, encouraging firms to come to the market.
The window of opportunity may not last long either because US interest rates could rise later in the year as the US Federal Reserve becomes wary about inflation.
They are used as a guide in setting the basis for bond prices globally so higher US rates could mean bigger payouts by bond sellers.
“They are taking advantage of a good market right now,” said Warut Promboon, a credit analyst for ING in Singapore.
“(Resources companies) will rush in, especially companies with maturing debt in the next two years. The window is closing fast so they have to hurry,” he said.
Rio Tinto is offering a five-year dollar bond at around 240 basis points (bps) over US treasury bonds, and a 10-year tranche at around 250 bps, a source involved in the deal said on Tuesday. Hundred basis points make one percentage point.
The Australian mining firm is also offering a 20-year tranche at 250-255 bps over treasury bonds, said the source, who declined to be identified because he is not authorized to talk to the media about the sale.
Rio could be seeking to raise $3 billion (Rs12,870 crore), according to an e-mail to clients from BNP Paribas’ analyst Brett Williams.
The firm intends to use the proceeds to refinance debt related to its $38 billion purchase of Canadian aluminium producer Alcan last year, sources say. Rio is itself the target of an estimated $163 billion bid by BHP Billiton, the world’s biggest mining group, though Rio has rejected the offer as too low.
Mining firms are benefiting from strong demand for commodities from fast-growing countries such as China and India.
India-focused Vedanta Resources Plc. set guidance for a 5.5-year dollar bond at a yield of around 8.25%, and a 10-year issue at a yield of 9%, a source involved in that deal said on Tuesday.
The London-listed mining firm is seeking to raise up to $2 billion, an investor source briefed on the deal said on Monday.
Vedanta will likely use the money to refinance debt, analysts said, as well as fund capital spending that is projected by Moody’s Investors Service to reach $3.3 billion over the next three to four years. It may also opt to use some of the money to partly fund the $2.6 billion deal by Vedanta’s unit Sterlite Industries Ltd to purchase the assets of miner Asarco Llc.
Rio and Vedanta are not the only firms from Asia-Pacific looking to raise money. South Korean oil refiner GS Caltex Corp. also set guidance on Tuesday for a five-year bond sale at 375-390 bps over treasury bonds, a person familiar with he plans said.
Reuters
Comment E-mail Print Share
First Published: Tue, Jun 24 2008. 11 03 PM IST