Chinalco to Obtain Loans for Rio Tino Deal

Aluminum Corp. of China (Chinalco) has inked a contract to invest USD 19.5 billion in leading global iron ore miner Rio Tino plc. (NYSE: RTP).
The capital, of which USD 12.3 billion will be used to set up joint ventures with the UK-based company and USD 7.2 billion will be used to acquire the latter's subprime convertible bonds, will be mainly loans, Xiao Yaqing, the managing director of Aluminum Corp. of China Ltd. (Chalco, SHSE: 601600, SEHK: 2600, and NYSE: ACH), the listed arm of Chinalco, said in an interview on February 16. Chinalco's liabilities ratio is about 60 percent, with fixed assets hitting around CNY 290 billion. It indicates that the company's self-owned assets is about CNY 100 billion.

It will be not a tough job for it to obtain the loans, reiterated Xiao. Currently, Chinalco is in close talks with several leading domestic banks over the issue. China Development Bank (CDB) and The Export-Import Bank of China (China Exim Bank) will manage the fundraising.

The deal, which is regarded as the biggest one Chinalco has ever launched in expansion, is expected to lift up its stake in Rio Tino to about 18 percent from previously 9.3 percent. It is significant, as it will let the company have a greater say in the global resources market, added Xiao. Actually, it is not the first time for the Chinese aluminum producer to cast its eye on Rio Tino. In February 2008, the company, in partner with US-based Alcoa Inc. (NYSE: AA), took a 12 percent stake in the Australian iron ore miner for USD 14.05 billion.

Prior to the transaction, it acquired a 91 percent stake in Canada-based Peru Copper Inc. for about USD 860 million in August 2007. In addition, it bought a 49 percent stake in Yunnan Copper Co., Ltd. (SZSE: 000878) for CNY 9.5 billion in November 2007.

Chinalco has been exerting all its power to extend reach to overseas markets in consistent with its strategy of "go abroad", since its establishment. It obtained huge mineral resources via a series of acquisitions, and its copper recourses had exceeded 12 million tons by the end of 2007. However, hurt by the global financial crisis, its listed arm Chalco's profits reached CNY 2 billion in 2008, down about 90 percent from a year ago.

(USD 1 = CNY 6.83)

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