Analysts at Citi have gamed out a potential asset swap between Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) and its major shareholder Chinalco, claiming such a deal could be "a positive turning point" for the miner’s investment case.
Rio is exploring ways to exchange the Chinese state-owned group’s $12.5 billion holding, Citi said, citing a report by Reuters, with the American bank's London-based analysts arguing that an arrangement for Chinalco's 11% shareholding in Rio may ease longstanding structural and geopolitical frictions.
Citi, in a note, highlighted that while Chinalco has been a “supportive but passive” investor since 2008, its presence as Rio’s largest shareholder has become a growing complication amid an increasingly polarised geopolitical climate.
It has also constrained Rio’s use of share buybacks, Citi reckoned, and that any increase in Chinalco’s stake would risk regulatory complications, if it passes 15%.
An asset swap, potentially involving Rio’s minority interest in the Simandou business along with selected aluminium or lithium assets, would provide “clear benefits” for Rio, Citi analysts claim.
They make the case that it would remove restrictions or limitations on strategy, whilst also allowing the company to rationalise parts of its portfolio.