BHP bypasses banks and heads offshore for cheap funding
The trend for Australian mining majors to bypass local banks and raise funds overseas has continued, with BHP Billiton completing its second long-term European bond offering in seven months.
Arranged on a 20-year term, BHP borrowed €750 million ($950million) at an interest rate of 3.125 per cent.
By comparison, the Australian government's 15-year bond is priced at 3.53 per cent, so BHP has secured a cheaper interest rate despite having the extra risk associated with lending over a longer period.
Few corporates can borrow money over such long periods of time, and the raising demonstrates the confidence European lenders have in the longevity of BHP's business model, which prizes diversification across commodities and geography.
It also continues a trend that was highlighted by the Reserve Bank this month, when assistant governor Guy Debelle drew attention to Australian miners' preference to source funds overseas.
"The companies have tapped bond markets rather than banks in part because of the longer tenors available in the bond market which match the long investment horizons of these projects," he said.
"Another reason is that a number of these resources companies are able to access financial markets at a cheaper price than the banks themselves can."
In September, BHP raised the equivalent of $5.1 billion in European bond markets, with the bulk of the loans not due to be repaid until 2042.
The company also raised $US5.25 billion from the US bond market in February 2012.
BHP did raise $1 billion from the Australian bond market in October at just under 4 per cent, but that was its first venture into the local market in 11 years.
According to data released by BHP in February, 89 per cent of its debt is from bonds and barely 3 per cent of those are Australian.
About 63 per cent of BHP's bonds were sourced in the United States, with about a quarter in Euro bonds and just under 9 per cent of bonds coming from the British market.
BHP said the latest raising would be used to refinance "current debt maturities".
It will have between $US2 billion and $US4 billion of debt mature in each year until the 2018 financial year, when debt maturities will be closer to $US1 billion.
BHP's overall gearing ratio stood at 31 per cent in February.
Falling commodity prices are dragging down revenues for the resources giant at a time when shareholders are demanding better returns.
That pressure will only increase after Woodside Petroleum treated shareholders to a special dividend this week.
The competing demands for BHP's cash has seen numerous expansion projects - including Olympic Dam in South Australia - put on the backburner.
Bank of America Merrill Lynch analyst Peter O'Connor said the most realistic hope for BHP shareholders was for the company to offer a special dividend this year based on the amount of money raised by divesting non-core assets.
BHP's Australian listed shares last traded at $31.70.