The biggest aluminum producer in China is looking to purchase as much as $20 billion worth of convertible bonds, stock and shares of aluminum mines from Rio Tinto Group. This will be one of many mergers over the past year in which China has bought access to vital commodities in foreign countries. Rio Tinto is based in London, but has mines all over the world.
Wiping Away Debt
Rio Tinto Group has nearly $39 billion in debt that it would like to wipe away to reduce operating costs and allow itself to better compete in low priced aluminum markets. Options to reduce its debt are limited, but many discussions have taken place within the company on a possibly strategy to remove as much of its debts as possible. After just one month on the job, the chairman-elect of Rio Tinto walked away after disagreements on how Rio might raise cash. While Aluminum Corp’s deal would likely result in the purchase of billions of dollars of bonds, the company is planning to buy convertible bonds in an effort to convert immediately to stock.
Not a New Deal
Last year, Aluminum Corporation bought 9% of Rio Tinto on the open exchange and filed with the regulatory committee to increase its stake to 11% of the company last August. There is a slight, though slim, possibility that Australian officials may block the request of Aluminum Corp to buy additional shares. Aluminum Corp will have to reapply with the Australian Foreign Investment Review Board to buy any additional stake in the company. Rio Tinto is one of China’s largest purchases of foreign commodities companies outside oil holdings, where PetroChina has completed a variety of acquisitions and stock purchases in the past two years.