Rio Tinto aims to cut debt with bond buyback

LONDON (Reuters) - Rio Tinto (RIO.L) (RIO.AX) on Monday announced a bond buyback plan for up to $3 billion, saying it was using spare cash to further cut its debt.

In a statement, it announced tender offers to buy up to $1.5 billion of its 2019, 2020, 2021 and 2022 dollar-denominated notes. In addition it has issued a redemption notice for approximately $1.5 billion of its 2017 and 2018 U.S. dollar-denominated notes. http://bit.ly/2cwylRx

Compared with other miners, Rio Tinto has a strong balance sheet and earlier this year completed $4.5 billion in bond buybacks. In August it announced it had reduced its net debt to $12.9 billion, down 6 percent from the end of last year.

Hunter Hillcoat, an analyst at Investec, said Rio's bond buyback could be a step towards a ratings upgrade

"Reducing gross debt levels removes a criticism it faced from the ratings agencies," he said.

The U.S. market is still cautious about commodity-related bond issuance following last year's price rout that left some miners struggling to tap the bond market because of heavy debt piles following last year's commodity price crash.

In Europe, the appetite for risk has been stronger as investors seek yield in an ultra low interest rate environment, helped by the European Central Bank's quantitative easing programme.

For the first time since last year's heavy price falls, Glencore (GLEN.L) returned to the eurobond market early this month with a nearly six-times oversubscribed one billion euro (£868.5 million) bond issue.

Industry sources speaking on condition of anonymity said all the big miners were likely to be opportunistic and they expected further use of bonds to drive down debt.

Provided bulk commodities continue to rally, they could also use the bond market to increase dividends, analysts said which were either suspended or reduced in response to the price crash.

(Reporting by Barbara Lewis; additional reporting by Sophie Sassard and Laura Benitez; Editing by Greg Mahlich)