BHP announced it was seeking to issue multi-currency hybrid capital securities and would be holding a series of investor meetings across Europe, the US and Asia beginning in late September. The non-convertible debt instruments would be issued by BHP Billiton Finance Ltd. and BHP Billiton Finance (USA) Ltd.
BHP said “The increasing interest in hybrid capital by global debt investors combined with the relatively low interest rate environment make this an opportune time for BHP Billiton to consider hybrid capital instruments.”
BHP has an A+ group rating from Standard & Poor’s and an A1 group rating from Moody’s. S&P said it had assigned an “A-“ long-term rating to the proposed hybrid issue. The securities would be classified as having “intermediate” equity content and thus qualify as 50% equity because they meet S&P’s criteria in terms of their subordination, permanence and optional deferment through a “call” clause. Moody’s has given the new hybrids an “A3” rating.
The effect of the part-equity classification means BHP can replace debt funding with hybrid funding and improve its gearing ratio all at the same time.
This would not be the first hybrid issued with the “part equity” classification. Origin, with its Origin Energy “Notes” (ASX code ORGHA) and Santos’ euro-denominated subordinated notes are examples of previously-issued hybrid debt which counted as 100% equity or partial equity for credit rating purposes. Click here more on the issues surrounding hybrid classification.