rio tinto

“AT least 50 of Australia’s largest companies face a combined $25 billion shortfall on company superannuation funds, brought on by plunging bond and equity markets.”

So The Australian newspaper reported on Tuesday. These include AMP with a deficit of $120 million, and Westpac with a deficit of $473 million.

Trumping those is Rio Tinto with a whopping $3.6 billion shortfall.

According to the article, it quotes David McNeice from consulting firm Watson Wyatt as saying, “At June 30, 2008, the companies in our study were holding $58 billion in defined benefit superannuation liability and backing that with $56 billion in assets.”

Of course, at June 30th 2008 the Australian stock market had only declined by about 25% from the peak. Since then it’s down by about 40%.

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This is probably the most popular stock in Australia. Between 2003 and May last year, it has also been a top performing stick, rising by almost 500% in 5 years.

From a low of $8.4 in May 2003, it bounced to $50 in May 2008.

BHP has a similar technical configuration as Rio Tinto. Where Rio is capped at $54 by a gap created in last November and which is now a strong resistance level, BHP is capped at $34 by an identical gap.

This gap was generated in the very last days of September (blue ellipse on the chart). It was also a previous low posted on September 10 (point A) that became a new high (point B) last month. This is therefore the immediate and main resistance level to the current price action.
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Probably the biggest story this week was the end of what was destined to be the merger of the century. Aside from all the why’s and wherefore’s about what went wrong with the merger, it also elicited the greatest number of marriage/engagement/divorce metaphors in the history of journalism.

That is quite some feat. We write of course, on the subject of the BHP Billiton/Rio Tinto story.

Aside from all the benefits that a takeover would have brought to BHP, the big point to take from it is that even mega companies are reluctant to add debt to their books at the moment. And it also gives an indication that if it is troublesome for the likes of BHP and Rio to raise money in this market, think about the smaller companies and how they must be faring.

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This morning we were beaten to it by The Age newspaper. Damn the ruthless efficiency and timeliness of the printed press.

“$2 company has new meaning” reads the front page story. It tells us that 48 of the S&P/ASX200 companies are trading for less than $2. We did a similar check on the S&P/ASX100 index yesterday. Fifty-three of those companies are trading for less than $5.

Of course the actual dollar value of the share price is not always significant. The market capitalisation of the company is more relevant. But it’s certainly a far cry from the euphoria of last year. Remember when pundits were jumping up and down with excitement trying to pick which Australian share would be the first to break through the $100 barrier?

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