October 14, 2015 / 5:31 PM / 4 years ago

UPDATE 1-BHP Billiton raises US$6.5bn with jumbo hybrid bond

* Mining firm offers chunky yields on sub debt

* Investors pile into up to US$5bn-equiv deal

* M&A opportunities on the horizon (Adds final yields and investor comments)

By Robert Smith

LONDON, Oct 14 (IFR) - BHP Billiton, the world’s biggest mining company, was on course to raise US$6.5bn-equivalent on Wednesday through one of the largest hybrid bonds ever seen out of the corporate sector.

The deal defied sceptics who doubted that even a mining company of BHP’s calibre could pull off a hybrid trade in the wake of this year’s dramatic decline in commodity prices.

The multi-currency bond - with euro, sterling and dollar tranches - showed investors are still willing to add risk in the battered metals and mining sector at the right price.

“BHP is a strong credit but it operates in a weak sector,” said Eve Tournier, head of pan-European credit at Pimco.

“There were some concerns that it wouldn’t be able to issue hybrids in the current environment.”

But by adding a “commodity premium,” active bookrunners Barclays, Bank of America Merrill Lynch, BNP Paribas and Goldman Sachs were able to amass more than US$13bn in orders worldwide.

“They have had to increase the coupon by about 50bp-100bp,” Tournier said.

“At that spread, they saw some significant demand from Asia, which is not the traditional investor base for this product.”

The miner set final yields of 6.25% on a US$1bn 60-year non-call five, 6.75% on a US$2.25bn 60-year non-call 10, 4.75% on a 1.25bn 60.5-year non-call five, 5.625% on a 750m 64-year non-call nine, and 6.5% on a £600m 62-year non-call seven.

At a final size of US$6.5bn-equivalent, the trade tops Total’s 5bn hybrid issued earlier this year, though it falls short of EDF’s 6.2bn-equivalent hybrid from 2013.

Final pricing was seen coming 300bp over fair value along the company’s senior curve, higher than the standard 250bp sub to senior spread differential typically paid in this market, said a syndicate banker away from the deal.

“People are asking for more to go down the subordination spectrum,” he said.

The miner left nothing to chance, offering investors chunky yields for what was initially marketed as an to up to US$5bn-equivalent trade.

Several bond buyers said pricing looked very attractive considering the deal’s expected A3/A- rating, with one saying: “Whichever way you look at it, it looks cheap.”


A second investor said the new hybrid could also provide flexibility for future M&A.

“The willingness to print at such high coupons indicates to me that they already have their eyes on something,” he said.

“They’re probably the only company in the sector, apart from maybe Rio Tinto, that can afford to buy right now.”

BHP Billiton slimmed down its portfolio of assets earlier this year through the demerger of South32, spinning off these mining assets in May.

But whatever means the company is raising the money for, the new trade has certainly awakened Europe’s hybrid market, which has been dormant during recent bouts of macro volatility.

The transaction had been in the works for a number of weeks, with the A1/A+ rated company mandating banks on September 22 before kicking off a global investor roadshow on September 28.

But the first day of meetings coincided with Glencore’s dramatic 29% share plunge, repricing not only the commodity traders’ bonds but also the wider metals and mining sector.

Making matters worse, European hybrid bonds had already sold-off heavily on the back of the emissions scandal at Volkswagen, one of the biggest issuers of hybrid debt.

“It is reassuring that, despite what happened with VW, there is appetite for this type of product when priced appropriately,” said Pimco’s Tournier. (Reporting by Robert Smith; Editing by Helene Durand, Sudip Roy, Paul Kilby and Marc Carnegie)

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