Typically, corporate fixed-interest fund raisings don't make headlines, but when it's BHP (ASX:BHP), the world's largest mining company and a major player in financial markets, a substantial $US4.7 billion debt issuance demands close attention.
BHP's significant fundraising through a US bond issue occurred amid decidedly "non-normal" times. Interest rates have surged due to central banks' efforts to curb inflation and orchestrate economic slowdowns while reducing cost pressures.
This rate hike has elevated borrowing costs and bank debt for all businesses. However, behemoths like BHP can still strike favorable deals with financiers and financial markets, as it did recently.
BHP's issuance followed the Reserve Bank's decision to hold interest rates steady for a third consecutive month, suggesting waning prospects of a rate hike in Australia, which may have boosted the miner's confidence.
More importantly, this issuance indicates that the world's largest mining company sees little chance of a rate increase by the US Federal Reserve at its upcoming meeting in under two weeks. It might even be seen as a "bet" by BHP that rate hikes have already peaked, with official and market rates expected to remain high for years.
On Wednesday, BHP announced that it successfully raised $US4.75 billion in senior unsecured bonds in the American market. Moodys currently rates BHP A1 stable, S&P rates it at A- stable, and Fitch rates BHP as A stable. These bonds will be issued by BHP Billiton Finance (USA) Limited, a wholly-owned subsidiary of BHP, under BHP's US debt registration statement filed with the US Securities and Exchange Commission on February 22, 2023 (a so-called 'shelf' registration allowing the fundraising to occur at the company's discretion). The bonds will be guaranteed by BHP.
What's intriguing is that this fundraising is divided into five tranches, ranging from three years to 30 years, all carrying interest rates (coupons) of over 5%, extending out to 30 years. The least expensive is the 5.1% rate on $US700 million of five-year bonds, while the most costly is the 5.5% rate on $800 million of bonds maturing in 2053. The largest tranche is $US1.5 billion in 10-year bonds with a rate of 5.25% (the same rate as the $US850 million in three-year bonds).
In fact, BHP's interest rates on this issue align with the current Fed federal funds range of 5.25% to 5.50%, indicating that, in terms of credit, Australia's largest company enjoys the same standing with investors as the world's largest economy.
BHP intends to utilize the proceeds from the bonds, along with available cash, to repay the acquisition facility used for the $A9.8 billion enterprise value acquisition of OZ Minerals and for general corporate purposes. This issuance will add more than $US200 million to BHP's annual interest expenses, with approximately 30% potentially eligible for a tax deduction.
The settlement for these bonds is scheduled for tomorrow (September 8).
