Morning:
13°c
Shares in Rio Tinto slumped more than two quid today amid growing speculation it is about to do a massive U-turn and abandon its $19.5 billion (£12.1 billion) refinancing deal with Chinese shareholder Chinalco.
Rio shares slumped 241p, or 8%, to 2671p after the company announced it was pursuing a number of options, some of which were at an advanced stage. But, according to market gossips, Rio will walk away from its Chinalco deal, which has been opposed by shareholders and the Australian Government ahead of the 14 June deadline.
Chinalco already owns 11% of Rio, and under current plans its stake would increase to 19% in return for a further injection of cash.
It seems Rio and Chinalco have fallen out over the terms of a $7.2 billion convertible bond that was a key component of the deal and had been pitched at a significant premium to Rio's share price in February, when the deal was first struck.
Rio may now embark on an orthodox $12 billion rights issue and create a joint venture with rival BHP Billiton. This may see BHP, down 64p at 1429p, take stakes in eight assets that Rio had proposed to sell to the Chinese. Rio needs to reduce its debt mountain by $20 billion over the next two years.
Elsewhere in the mining sector, Deutsche Bank has repeated its buy rating on Xstrata, down 31½p at 696½p, and lifted its target from 756p to 862p.
It has been a day to remember for two of the Square Mile's big-hitters, Citigroup and JPMorgan Cazenove, which were busily placing the rump of two recent rights issues.
The first involved the £280 million raised by Lonmin, the world's third-largest platinum producer.
Shareholders took up 96.83% of the fully underwritten, two-for-nine issue. The remaining unwanted 1.27 million shares were placed by brokers with various institutions in the market place.
Lonmin's price responded with a fall of 129p to 1381p. That compares with its peak of 3272p in September. It needed the extra cash to cut debt having swung into a loss during the first half of the year, which also forced it to slash its payout to shareholders.
The same two brokers were also placing the rump of DSG International's recent rights issue and placing to raise £310.6 million. A total of 1.46 billion shares were taken up of the five-for-seven rights, amounting to 97.1% of the entire issue. The brokers placed the rump of 42.9 million shares at 25¾p with various institutions.
The electrical retailer firmed 1p to 26¼p. Citigroup was also behind department stores chain Debenhams' move to raise £323 million via a placing of new shares and open offer.
The shares, down 4¼p at 88p, have been offered at between 80p and 85p. Debenhams needs the extra cash to reduce debts, which at the last count amounted to more than £900 million.
The fundraising will dilute the combined stake of 20% belonging to venture capitalists Texas Pacific Group and CVC to 15%. Gossips claim CVC may have started to sell part of its holding in the market place.
Shares extended recent losses after the Bank of England's vote to keep interest rates unchanged at 0.5%. The FTSE 100 index lost an early lead to trade 13.83 lower at 4369.59. An early rally on Wall Street this afternoon failed to hold, with the Dow losing 27.25 at 8648.03.
Barclays rallied 5p to 264¾p in the wake of this week's 1.3 billion share placing at 265p by Sheikh Mansour bin Zayed al-Nahyan. The shares had started the week at 316p.
The big supermarket chains responded to better-than-expected numbers from Wm Morrison, up 5½p at 253p. J Sainsbury put on 7p at 323½p, Tesco added 8.5p at 361.8p. Charles Stanley has raised Morrison from hold to accumulate.
