Australia's Alumina to raise $300 mln in convertibles

SYDNEY, May 13 (Reuters) - Australia's Alumina Ltd said on Tuesday it launched an offer to raise about $300 million in convertible bonds to repay debt, help fund the expansion of an alumina refinery and dig a new bauxite mine.

Convertible bonds are especially suited to the investment intensive resource sector where companies need to raise funds to complete major projects.

Shares in Alumina, a 40 percent partner in the Alcoa World Alumina and Chemicals (AWAC) joint venture that is 60 percent owned by Alcoa , were placed on a trading halt on Tuesday. The stock closed at A$6.42 on Monday.

AWAC, in partnership with BHP Billiton Ltd/Plc and Rio Tinto Ltd/Plc , is expanding the Alumar alumina refinery in Brazil by 2.1 million tonnes. AWAC holds 54 percent of the project.

It is also developing its wholly-owned Juruti bauxite mine, also in Brazil, which will initially yield 2.6 million tonnes of the alumina-making raw material. Both projects are set to start up in the first half of calendar 2009, a company spokesman said.

Convertible bonds stand between debt and equity, allowing companies to avoid issuing more stock at a time when their share price is expected to increase. The bonds give investors regular interest payments and allow them to benefit from a share price appreciation when the securities convert into equity.

Alumina's notes are expected to pay a coupon between 1.7 and 2.7 percent per year and offer a 25-33 percent conversion premium to the A$6.42 reference price, according to a term sheet seen by Reuters.

This would mean an initial conversion price of A$8.03 to A$8.54 when the bonds mature on May 16, 2013.

Sole bookrunner Goldman Sachs International was not immediately available to comment. The books opened earlier on Tuesday and will close on Wednesday, Alumina said.

After three years, investors can sell the notes back to Alumina.

The offer is documented under regulation S, which excludes the participation of U.S.-based investors. It is expected to be listed on the Singapore Stock Exchange after it closes on May 16.

 The issue is expected to be rated BBB+ by Standard &
Poor's.     Alumina had been looking to raise debt since last
year, but the lingering global credit squeeze halted its plans.
Alumina considered selling bonds in Europe after a series of
meetings with investors. It also explored the Australian hybrid
market for a possible raising last year.

Alumina's credit rating was downgraded in March to BBB+ by Standard & Poor's from A- because of sizeable funding requirements to complete projects in Brazil at a time of rising production costs and a stronger Australian dollar.

The company, which blamed a 15 percent fall in full-year profit on higher operating costs and a strong Australian dollar, has flagged persistent higher energy and shipping costs compounding tougher currency exchange rates. ($1=A$1.06) (Additional reporting by James Regan, Editing by James Thornhill & Ian Geoghegan)