(Adds details, fund managers' comments)
By Sonali Paul
MELBOURNE, Jan 28 (Reuters) - Global miner Rio Tinto Ltd/Plc, facing persistent rumours it might need to sell shares to help pay off $39 billion in debt, conceded an equity raising was one option being considered.
Rio Tinto's shares fell as much as 5.5 percent to A$39.85, bucking a stronger broader market, as investors bet it might have to raise between A$4 billion and A$8 billion ($5.3 billion) from a rights issue as it struggles to sell more assets.
"They will have to continue to sell assets, there's no doubt about that, even with a rights issue. But it would put them in a better position," said Tim Barker, resources analyst at BT Investment Management, which owns Rio Tinto shares.
Rio Tinto announced sweeping plans in December to cut jobs, slash capital spending and expand asset sales aiming to cut debt by $10 billion this year, after bigger rival BHP Billiton scrapped a $66 billion takeover bid, blaming Rio's debt levels and sliding metals prices.
Rio Chief Executive Tom Albanese had expected to avoid selling new shares to meet Rio's debt reduction target when he announced the plans.
But the company backpedaled on Wednesday, saying it was looking at all options, including an equity raising.
Rio has $8.9 billion in debt due in October 2009 and $10 billion due in October 2010.
"In order to preserve maximum flexibility for the Group, the Boards do not rule out the potential to issue equity as one of the options it has available," the company said in a statement.
Media reports have speculated the group might raise as much as $7 billion through a rights issue.
Rio Tinto had aimed to sell $10 billion worth of assets last year, including its U.S. coal business, as it tried to pay down debt it took on with its $40 billion takeover of Alcan in 2007.
So far it has sold $3.1 billion worth of assets, including its half stake in a Chinese aluminium smelting business sold this week. It is still looking to sell its U.S. coal business and the Alcan packaging business.
Analysts have speculated the group might sell its stakes in the Australian coal business, Coal & Allied Industries and uranium miner ERA Ltd, but the company's top energy executive Preston Chiaro told Reuters last week there were no plans to sell those businesses.
Three fund managers said a rights issue might be well supported by investors if Rio Tinto raised enough money to allay concerns about its ability to pay down debt and avoid a firesale of assets in a tough market.
"I don't think it's necessarily the whole solution. They'll be keen not to go too hard in issuing equity, given the depressed share price and people's concerns over what's gone on with BHP," said Tim Schroeders, a portfolio manager at Pengana Capital.
A key obtacle for Rio Tinto will be how to structure any rights issue, as the dual-listed company's London-listed shares are trading around 15 percent below its Australian shares. "You might have to have a massively discounted rights issue to take into account the disparity in prices," said Schroeders, estimating the discount might have to be as large as 25-30 percent.
Rio Tinto would be the latest in a string of Australian companies turning to shareholders to raise cash to help pay down debt or shore up their capital reserves over the past few months.
Coal-to-groceries conglomerate Wesfarmers last week raised A$2.9 billion, while the top three banks have raised more than A$7 billion in new equity. ($1=1.510 Australian Dollar) (Editing by James Thornhill & Kim Coghill)