Since taking the helm of Rio Tinto Jan du Plessis has stressed his willingness to listen. Good. The message from many shareholders could hardly be clearer: if Chinalco really won't budge on the asset sales, we need better terms on the convertible debt.
Investors were hardly thrilled while the proposed convertibles – in two tranches, worth $7.2bn in total – were a long way out of the money. Chinalco had been given a no-brainer of a deal: receiving funds at about 5 per cent from various policy banks, it was simply round-tripping that capital to earn a weighted average of 9.2 per cent. Now that Rio's resurgent shares have nudged through the first of the two strike prices, effectively handing the Chinese company fresh equity at a discount, they are tetchier still.
Rio could reduce the quantum, or the coupon. Ideally, it would do both. When set against a recent convertibles issue from Anglo American, another triple-B miner which raised $1.7bn at 4 per cent, the interest rate looks generous indeed. True, the two deals are miles apart structurally: while Anglo's is a senior debt instrument, with a five-year maturity, Rio's is subordinated, with an equity-like 60 years. But credit markets are much looser than when Rio's deal was struck in early February – even for convertibles. The coupon could, and should, come down significantly before Chinalco starts to squeal.