Rio Tinto Flags Possible Equity Raising

Global miner Rio Tinto, facing persistent rumors it might need to raise equity to help pay down $39 billion in debt, said an equity raising was one option being considered.

Wednesday's announcement saw Rio Tinto's shares fall as much as 5.5 percent to A$39.95.

Rio said it was looking at all options, which also included job cuts and wider asset sales, to meet its target of reducing debt by $10 billion this year.

"In order to preserve maximum flexibility for the Group, the Boards do not rule out the potential to issue equity as one of the options it has available," the company said in a statement.

Back in December Rio had said it would cut jobs, slash capital spending and expand asset sales to reduce its debt burden, after bigger rival BHP Billiton scrapped a $66 billion bid for Rio citing its debt levels and weaker metals prices.

Rio's chairman and chief executive had both said in the wake of BHP's withdrawal that the group did not need to raise equity.

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But media reports have speculated that the group might raise up to A$6 billion (US$4 billion) through a rights issue.

Two fund managers said an equity raising was probably not Rio Tinto's preferred path, but if it raised enough money to allay concerns about its ability to pay down debt and avoid a firesale of assets in a tough market, it might be well supported.

"It needs to be the right size to make it clear that it puts the company on the right path," said Tim Barker, resources analyst at BT Investment Management.

"They will have to continue to sell assets, there's no doubt about that, even with a rights issue. But it would put them in a better position," he said, not ruling out an equity raising of as much as A$6 billion.

Copyright 2009 Reuters. Click for restrictions.