Overview
Convertible bonds
Chinalco will invest a total of US$7.2 billion in subordinated convertible bonds issued by Rio Tinto plc and Rio Tinto Limited (or companies within the Rio Tinto Group) with a maturity of 60 years. If converted, the bonds would increase Chinalco's current shareholdings to 19.0 per cent in Rio Tinto plc and 14.9 per cent in Rio Tinto Limited, equivalent to an 18.0 per cent interest in the Rio Tinto Group. The Rio Tinto plc bonds will pay an annual coupon of 9.0 per cent and the Rio Tinto Limited Bonds will pay an annual coupon of 9.5 per cent.
Each of the Rio Tinto plc and Rio Tinto Limited bonds will be split into two tranches. Tranche A of the bonds will convert into Rio Tinto plc shares and Rio Tinto Limited shares at an initial conversion price equivalent to US$45 per share. Tranche B of the bonds will convert into Rio Tinto plc shares and Rio Tinto Limited shares at an initial conversion price equivalent to US$60 per share. However, these conversion prices are subject to adjustment in certain circumstances such as, inter alia, share consolidations, share splits and share distributions. Tranche A represents US$3.1 billion of the total issue size, and Tranche B represents US$4.1 billion of the total issue size.
The respective conversion premium to be paid by Chinalco on Tranche A and Tranche B of the Bonds is:
- 107 per cent for Tranche A and 176 per cent for Tranche B to the Rio Tinto plc closing price on 30 January 2009.
- 68 per cent for Tranche A and 124 per cent for Tranche B to the Rio Tinto Limited closing price on 30 January 2009.
The bonds will be convertible into ordinary shares of Rio Tinto plc and Rio Tinto Limited at any time from 41 days after the closing date up to a certain number of days prior to the earlier of the maturity date of the bonds and the date of redemption of the bonds. The bonds will be redeemable by Rio Tinto after seven years. If so redeemed for cash, Rio Tinto presently intends to replace the bonds with instruments that achieve similar rating agency equity credit.
The bonds have been structured with the aim of achieving 50 per cent equity credit from the rating agencies. Standard & Poor's has indicated, subject to satisfactory final documents and the amount to be issued relative to the capital of the Group, that the bonds would be eligible for intermediate (50 per cent) equity credit. The amount of equity credit is subject to final confirmation by the agencies.
