BHP Billiton to Sell About $3 Billion in Bonds
October 13 2015 - 5:52PM
Dow Jones News
By Christopher Whittall And Mike Cherney
BHP Billiton Ltd. is planning to sell around $3 billion of U.S.
dollar hybrid bonds this week, according to a deal notice released
Tuesday and a person familiar with the deal.
The plan is the latest test of reviving demand for
commodity-related investments. Investors this year have sold
mining-company bonds following a slowdown in China and a fall in
commodities prices. But gains over the past week in
commodity-related asset prices are likely to boost demand for BHP
debt, said Henry Peabody, who helps oversee the $1.2 billion Eaton
Vance Bond Fund.
"That helps the prospects for this deal," he said. "Investors
should be willing to give the company capital," he said.
The average yield on debt issued by metals and mining companies
hit a six-year high of 6.4% in late September, according to
Barclays, compared to a recent low of 3.3% in April. Yields rise as
prices fall.
The average yield on mining companies' debt has since dropped to
5.3%, according to Barclays, following a bounce in commodities
prices.
The miner is also planning to sell corporate hybrid bonds
denominated in euros and sterling, though no official announcement
has yet been made, according to people familiar with the deal.
Hybrid bonds are a risky form of corporate debt that combine
aspects of both debt and equity. Interest payments can be deferred,
and the bonds are junior to all other forms of debt in the event of
a default. Companies issue the debt because it allows them to raise
capital without diluting existing shareholders.
Investors are being offered a yield of around 7% on a 60-year
dollar bond that can be retired after 10 years, according to a
person familiar with the deal. The pricing of that bond, scheduled
for Wednesday, will be used as a reference point to price a second
60-year dollar bond that can be retired after five years, the
person said.
BHP Billiton said in a statement filed with Australian
Securities Exchange last month that it would begin marketing Sept.
28 a multi-currency hybrid corporate bond that it expected to be
treated as half debt, half equity by ratings companies. BHP
Billiton is rated A1 by Moody's Investors Services and A+ by
Standard and Poor's.
The low interest-rate environment makes it an "opportune moment"
to consider issuing these securities, the company said. The
proceeds will be used for general corporate purposes, including
refinancing other near-term debt when it comes due, the company
said.
Philippe Berthelot, head of credit at Natixis Asset Management,
said he hasn't decided whether to buy the bonds.
Mr. Berthelot, whose firm oversees $355 billion, said that
corporate hybrid securities have been one of the worst bond
investments so far this year in terms of performance.
Corporate hybrid bonds recorded a negative total return of
around minus 4% in September, according to Barclays, driven by a
sharp selloff in the hybrid debt of auto maker Volkswagen AG.
"That is why you have to think," said Mr. Berthelot, who said he
would make his final decision depending on the pricing of the new
BHP Billiton debt.
Bank of America Merrill Lynch, Barclays PLC, BNP Paribas SA and
Goldman Sachs Inc. are underwriting.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Mike Cherney at mike.cherney@wsj.com
(END) Dow Jones Newswires
October 13, 2015 18:37 ET (22:37 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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