How Would Rio Tinto’s Bond Buyback Activity Impact Its Outstanding Debt?

by Trefis Team
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Rio Tinto
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Rio Tinto has made debt reduction a priority this year, with the announcement of plans to further trim its outstanding gross debt by $3 billion. [1] The September buyback announcement follows on from the successful completion of cash tender offers for debt totaling $4.5 billion earlier in the year, in addition to the redemption of $1.5 billion worth of bonds maturing in June. If the company successfully executes the buyback of the recently announced $3 billion worth of debt, it would lead to a 22% reduction in Rio Tinto’s gross debt over the course of the year, as illustrated below. In order to simplify the calculation, we have ignored the impact of debt amortization and foreign exchange movements in calculating the company’s debt at year end. A rationalization of the company’s debt burden will stand it in good stead in the prevailing environment of subdued commodity prices.

Rio Tinto Debt Reduction 1

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Rio Tinto
Notes:
  1. Rio Tinto launches new debt reduction program for up to $3 billion, Rio Tinto News Release []
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