The Distillery: Bond eye

Jotters examine the motives behind BHP Billiton’s bond issue, and find little but gas in a NSW talk-fest.

BHP Billiton is raising money from a bond issue in the US and could raise hell in the world potash markets according to two business journalism veterans. Also in this morning’s edition of The Distillery, the New South Wales gas market is facing the most immediate threat from Australia’s move into export markets and very little progress is being made to rectify that. 

Fairfax’s Malcolm Maiden says the first theory about BHP Billiton’s bond issue is short-term – that the miner is wary about the rising cost of debt.

“The second view is long term, and by long term I mean baby-boomer long term. Boards are stuffed with baby boomers. They remember what steep borrowing costs look like, and know they don't look anything like this. They know too that five years from now the markets will probably be rewarding companies that took advantage of the cheap money while it lasted, and are carefully backing their intuition. BHP's latest raising is, for example, loaded with long-dated debt that locks in lower debt-servicing costs.”

Speaking of the longer term, Business Spectator’s Stephen Bartholomeusz argues that the theory that Belarus’s Uralkali will return to the Russian potash cartel after its register restructure could very well depend on what BHP does.

“BHP’s Andrew Mackenzie annoyed some BHP institutional shareholders earlier this year when, in announcing the group’s 2012-13 results, he also committed to a further $US2.6 billion of investment in its Jansen potash project in Canada over the next few years. Some of BHP’s shareholders want the group to halt all investment in new projects. The investment will enable BHP to finish sinking production and service shafts and associated above-ground services and facilities at Jansen, preserving the option to give the $US13 billion or $US14 billion project a go ahead in a few years’ time. Jansen could be the world’s largest potash mine and among the lowest-cost. The schism between Uralkali and Belaruskali, regardless of its outcome, is providing BHP with some valuable market intelligence because it gives an insight into how the market might behave if the price were set predominantly according to the supply-demand equation.”

Sticking with resources, The Australian Financial Review’s Angela Macdonald-Smith explains how the delegates at yesterday’s New South Wales energy security summit delegates could agree only that the state had a gas supply problem.

“But whether that problem was to do with resources, deliverability, availability or price depended on the particular politician, analyst, buyer or seller in question. Industry Minister Ian Macfarlane’s pledge to force the process through streamlined approvals and harmonised standards between states for coal seam gas provides room for future optimism. But gas buyers were left without answers for their shorter-term problem and a wave of resentment against the liquefied natural gas export projects in Queensland was palpable.”

And staying in New South Wales gas, The Australian Financial Review’s Matthew Stevens shows how Origin’s pipeline deal with APA is a clear demonstration of how New South Wales is set to be the first state to be challenged by the arrival of Australian gas in foreign markets.

“They also highlight the challenge facing Victoria’s gas market, which is now certain to become the biggest suppler to NSW in arrangements that will almost certainly speed the southern state’s collision with export parity gas pricing. Currently better than half of NSW’s gas requirement flows down the Moomba pipeline with the bulk of that gas extracted from the Cooper Basin. But from next year when the first of Queensland’s LNG export plants begins its long ramp-up to full production, the supply side of the national gas story is going to be changed forever. As the legacy contracts run off between 2014 and 2017, the gas once destined for Sydney will go northwards to Gladstone and then onwards to customers in Japan, China, Korea and Taiwan.”

Elsewhere, The Australian Financial Review’s Chanticleer columnists Tony Boyd says Masters of Business Administration students should take note of one of the resurgent brands prominent during the AFL Grand Final broadcast because it could very well become a future business case. The brand in question is Westpac’s Bank of Melbourne.

And finally, The Australian’s economics correspondent Adam Creighton digs up every argument he can against Australia’s current levels of university subsidies.