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Rio Tinto Group, the world's third-largest mining company, said BHP Billiton's abandoned US$66 billion ($120 billion) hostile takeover offer still undervalued the company.
The bid fell short of Rio's own valuation, Paul Skinner, chairman of the London-based company, said yesterday in Sydney.
Rio plunged 37 per cent, the
most on record, in London trading yesterday after Melbourne-based BHP scrapped its offer for the company. It tumbled 34 per cent in Sydney yesterday. The failure of the bid created concern the company may struggle to repay US$45 billion in debt used to buy Canadian aluminum maker Alcan last year.
Rio's response to the bid was "always driven by value," Skinner said. It wasn't surprising BHP dropped the bid, he said.
Skinner said he was committed to staying as Rio chairman.
Rio refused to talk with BHP during the year-long takeover battle, saying BHP undervalued the company's mines and its prospects. Rio has the "best undeveloped assets in the business," Skinner said.
Rio may have the rating on US$5 billion of its debt cut by Moody's Investors Service after a slump in prices for metals and raw materials. "In the last few weeks, investors were already starting to focus on the Rio Tinto debt position," said Tony Robson at BMO Capital Markets in Toronto. "That will become more and more of an issue in the weeks ahead."
Skinner said he was "comfortable" with the company's financial position. Rio remains committed to asset sales following the Alcan transaction.
The average interest rate on its debt is 2.8 per cent, Skinner said.
"The review reflects Moody's expectation that Rio Tinto's mid-term performance is likely to be adversely impacted by negative market conditions for key metals such as copper and aluminum," Moody's said in a statement. "Given the slowdown in global steel production, greater uncertainty exists with respect to mid-term volumes and prices in iron ore, an important business segment."
Rio is battling weakening world demand for aluminum that has pushed stockpiles to their highest since 1994 and set prices on course for the biggest annual drop in 17 years.
Rio said last month it would review project spending and may delay US$10 billion of asset sales that aimed to reduce debt from its purchase of Alcan.
Rio's "high level of debt following the 2007 debt-financed acquisition of Alcan is also a factor in the review," Moody's said. "A key factor in the review will be the company's ability to execute on its divestiture program and reduce debt over the next 12 months, including the US$8.9 billion maturity in October 2009."
Rio had its rating outlook cut by Moody's earlier this month.
Australia's mining and materials companies may face a cooling credit outlook because of the tightening availability of debt finance, Standard & Poor's Ratings Services said last month.
It also cut its rating outlook on Rio from "positive" to "developing" on October 28, citing the company's debt, limited asset sales and weaker commodity prices.
- BLOOMBERG