Gm Exposure

1. Describe the development of Rio’s share price in 2008 and 2009.

Above line graph shows the movement of Rio Tinto’s stock price on ASX over last two years. The stock price once hits the peaked during June 2008.Then began to constantly drop from summit, especially sharply decreasing during fourth quarter of 2008. The falling trend was terminated after Christmas and constantly increasing from lower $40 on January to mid $70 until June 2009 later, suffered a new wave of drop during June to July but rapidly recovered jump to $60.

What is the reason for the drop in the price between August and December 2008.

Such significant drop of stock price can be seen as the result of comprehensive reasons in both internal and external issues.

The internal reasons largely due to the high leverage ratio where major from the merge with Canadian aluminium producer Alcan for US$38.1 billion. In order rise capital for acquisition ,Rio Tinto entered in to syndicated credit facilities of up to US$40 billion which have principal repayments falling due in October 2009, October 2010 and October 2012. Consequently, the liquidity risk was the mainly contribution factor gives lowing pressure from market.

The external reasons we focus on both resource-related commodity demand and world general economics conditions. The significant decrease in commodity prices strongly influenced by reduction demand from Eastern Asia (notably China). The unexpected fluctuations have negative impact on Rio’s revenues, earning cash flow, and share price. The financial crisis enhances the difficulty of credit market, where lead to Rio debt reduction and capital restructure even harder. Another indirect consequence is increasing the finance cost to repay the debt. For instant, BHP withdraw the takeover plan during November 2008 due to deteriorated condition of international credit market.

What caused the subsequent steady rise until June 2009 and why did the share price fall...