Rio Tinto Prices Bonds - Analyst Blog

By Zacks | June 17, 2013 AAA

Rio Tinto Finance (USA) plc, a subsidiary of Rio Tinto plc (RIO), announced the pricing of $3.0 billion fixed and floating rate bonds. Each of the bond categories comprises two tranches of notes. However, Rio Tinto has not revealed the purpose for which the proceeds shall be used.

The fixed rate bonds consists of 3-year fixed rate notes at 1.375% for $1.0 billion, maturing on Jun 17, 2016 as well as 5.5-year fixed rate notes at 2.250% for $1.25 billion, maturing on Dec 14, 2018.

The floating rate bonds consist of 2-year floating rate notes, paying a coupon of 3-month US$ LIBOR added with 55 basis points, which are due to mature on Jun 19, 2015. Apart from this, the floating rate bonds include 3-year floating rate bonds, paying a coupon of 3-month US$ LIBOR added with 84 basis points, maturing on Jun 17, 2016.

Although not directly issued by Rio Tinto, these bonds will be guaranteed by Rio Tinto plc and Rio Tinto Limited.

As on Dec 31, 2013, Rio Tinto had $7.1 billion in cash and cash equivalents and $24.6 billion of borrowings and other financial liabilities. Rio Tinto had $1.0 billion interest payments pending as on Dec 31, 2012, which will likely increase with the issue of these bonds.

Rio Tinto Finance (USA) plc made a similar kind of issue in Aug 2012. However, the issue was restricted to fixed rate bonds,with an average maturity of 12.9 years and an average coupon rate of 2.67%, valued at $3.0 billion. The total offer comprised 5-year debt securities at 1.625% for $1.25 billion, maturing on Aug 21, 2017, 10-year securities at 2.875% for $1.0 billion maturing on Aug 21, 2022 and 30-year securities at 4.125% for $750 million maturing on Aug 21, 2042.

Rio Tinto currently carries a Zacks Rank #4 (Sell). Not all stocks in the mining industry are performing as badly as Rio Tinto. Companies like Golden Minerals Co (AUMN), Hi-Crush Partners LP (HCLP) and Alliance Resource Partners LP (ARLP), each carrying a Zacks Rank #2 (Buy), appear impressive and are worth considering.

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