UK institutional asset manager Hermes Investment Management is currently recommending BHP hybrid bonds to investors as a substantially-higher yielding investment compared to the company’s vanilla bonds. The asset manager said investors can get a 300bps pick up by switching from BHP’s ordinary bonds to the company’s hybrids and it thinks the greater level of risk is worth the switch.
Hermes refers to BHP’s strong credit rating, reputation and the mining giant’s history of paying ordinary dividends. This latter point is important as the hybrids’ interest payments may be deferred at any time solely at the discretion of BHP. Hermes thinks is coupon deferral on the hybrids is unlikely as BHP has consistently paid dividends for decades.
The hybrids were issued last year amongst enormous investor interest. There were five tranches in all; two series are denominated in euros, two are denominated in USD and one is denominated in pounds sterling and coupons ranged from 4.75% to 6.75%.