Afternoon:
9°c
Trading got under way in Rio Tinto's nil-paid shares today after its announcement a couple of weeks ago that it would raise £8.8 billion by way of a 21-for-40 rights issue at 1400p.
To adjust for the effects of the rights issue, Rio shares were showing a loss of 643p at 2186p, while the nil-paid changed hands at 786½p each, after starting the day at 900p.
Rio turned to shareholders and institutional investors after abandoning its tie-up with 11% shareholder, Chinese state-owned aluminium producer Chinalco, on the back of objections from the Australian government and certain shareholders.
The deal would have seen Chinalco inject $19.5 billion (£11.9 billion) into Rio in return for shares which would have lifted its holding to almost 19%.
Rio has now chosen to raise the money itself and will also be selling various assets to the likes of the world's biggest mining company BHP Billiton. Rio and BHP have also formed an iron ore joint venture which Chinalco says has a “strong monopolistic flavour”.
Elsewhere in the mining sector, Anglo American was left nursing a loss of 86p at 1593p after JPMorgan Cazenove cut its rating from in-line to underperform. The Anglo board has come under increased pressure from institutional shareholders who want the company to merge with rival Xstrata, down 44p at 672½p. But the Anglo board has set its face against such a deal.
Investors insist that such a deal needs to be done and that their faith in the board's ability to manage the company is on the wane. The two sides have flirted with each other for several years, but the tie-up between Rio and BHP has added urgency to the possibility of a deal being struck.
Elsewhere, a further softening in raw materials prices, such as copper, gold and crude, took a toll on miners and oil companies. Copper producer Antofagasta fell 50p to 580p, while Lonmin shed 93p to 1208p and BP lost 11½p to 491½p.
News of another company turning to shareholders for extra cash damped the rest of the market. This time, J Sainsbury, down 12½p at 319¼p, is looking to raise £432 million through a share placing at 310p a share and bond issue. This led to modest losses among other blue-chips and left the FTSE 100 index nursing a fall of 48.71 at 4279.86. The wider FTSE 250 index was down 130.8 at 7352.7.
Blue-chips were led higher for the second day in a row by BT Group, up 3p at 105.5p, as a healthy 40 million shares changed hands. Brokers are continuing to assess the impact on the communications giant of the Government's broadband tax in an effort to roll out fast internet speeds across the country. The shares are also benefiting from a Morgan Stanley upgrade yesterday.
But Unilever fell 14p to 1463p after UBS downgraded the shares from neutral to sell. The Knorr soup-to-Flora margarine group is often favoured by investors as a defensive hedge during difficult economic times.
Venture Production retreated 12½p to 758p after the Takeover Panel deadline for Centrica to make a firm offer for the Aberdeen-based oil and gas explorer passed. The regulator has now set a new deadline of 13 July. Back in March, the British Gas operator revealed it had spent £240 million buying a 22% stake in Venture and was mulling making a cash offer for the rest of the shares.
Centrica, 2p easier at 222p, paid on average 725p a share for its stake, but Venture, which develops “stranded asset” oil fields, insists an offer at around that price would substantially undervalue its assets.
Rift Oil lost ¼p to 12½p after agreeing to accept a 13p-a-share offer from American rival Talisman Energy. The terms value Rift at £114.8 million.
Deutsche Bank has been doing some catching up at Punch Taverns, up 2p at 105½p, by slashing its target price from 220p to 120p. Earlier this week, the UK's biggest pub chain landlord raised £375 million. That compares with its current stock-market value of £488 million. But it still has debts totalling more than £4 billion. Hedge fund Millennium Partners has disclosed a short position amounting to 0.47% of the shares in issue, while WorldQuant accounts for a 0.3% holding.
Ark Therapeutics stood out with a rise of 4p at 48p after signing a sales collaboration with American rival AOTI Inc on Kerraboot, its wound-dressing device for leg and foot ulcers. The initial agreement will see AOTI buy Kerraboot from Ark for two years and includes minimum purchase commitments.
