Aussie Lenders Wary of Globe-Trotting Locals
Australian banks are reluctant to support local companies expanding overseas, according to the head of mining services provider Barminco Holdings Pty, which is paying about 9 percent to borrow in the U.S.
“The Aussie banks are inherently conservative,” the company’s Perth-based Chief Executive Officer Peter Stokes said in a phone interview. “They’re really not interested in Aussie companies dealing outside of Australia other than their tier 1-BHP and the likes with multinational syndicates.”
That contrasts with international lenders, which are attracted to Australia’s economic stability and willing to back borrowers seeking to expand in Africa, said Stokes, who joined the company as CEO in February. Barminco last month used the proceeds of a $485 million bond sold to U.S. institutional investors and a A$100 million ($95 million) loan from five offshore banks to refinance debt, people familiar with the matter said.
Companies in Australia are borrowing record amounts from North American investors, who, facing a fifth year of near-zero benchmark interest rates, are searching for better returns in the high-yield market and willing to lend large amounts of money on flexible terms. Barminco sought U.S.-based financing after negotiating more time to repay debt that was due in February, a person familiar with the matter said in March. Its 2018 bonds carry a B- rating from Standard and Poor’s, the sixth-highest junk grade.
Barminco’s notes were sold at a spread of 818 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Five-year (USGG5YR) U.S. government bond yields have risen 30 basis points this quarter to 1.06 percent.
Margins for loans signed in the Asia-Pacific region outside Japan this month average about 151 basis points more than the London interbank offered rate compared with about 196 basis points at the start of the year, Bloomberg data show.
High-yield securities typically don’t come with restrictive financial covenants which require borrowers to regularly test financial ratios.
“A high-yield bond was a very attractive option for us,” Stokes said. “It’s given us the financial security and stability that we haven’t had now for a couple of years.”
Barminco plans to ride out a lackluster outlook for business locally by expanding in new markets overseas, Stokes said.
The deferral of major Australian projects by large miners in response to falling commodity prices will weaken earnings and spark job cuts, according to mining support companies Boart Longyear Ltd. (BLY), Transfield Services Ltd. and UGL Ltd.
Investment in the resources sector may have peaked after about A$150 billion of mining and energy projects were delayed or scrapped in the past year, the Bureau of Resources and Energy Economics said in a May 22 report.
“There’s a real feeling in Africa that it’s where Kalgoorlie or Western Australia was 20 years ago in the hard rock or gold space,” Stokes said. “There really is a lot of opportunity.”
Barminco’s revenues are currently about A$825 million, he said. Africa accounts for almost 20 percent, via a gold-mining joint venture with Perth-based Ausdrill Ltd. (ASL), according to Stokes.
Barminco is also in discussions to secure copper projects in Africa, plans to grow operations in north Asian countries and may begin business in Latin America within two years, he said.
The company, which was bought by Sydney-based Gresham Private Equity Ltd. in 2007, is also planning to trim gold-mining projects to less than half of operations by mid-2014, from more than 55 percent currently, Stokes said.
Gold prices have tumbled this year as some investors lost faith in the precious metal as a store of value and amid concern the Federal Reserve will slow the pace of stimulus.
Barminco also works for nickel, copper, zinc and tin miners, and doesn’t rely on a single mine for more than 15 percent of its business, Stokes said.
Plans for an initial share sale, deferred once in 2011 because of unfavorable market conditions, also aren’t back on the agenda, Stokes said. Barminco is instead focused on generating new business and a new contract may be announced in the next fortnight, he said.
“There’s no pressure from our shareholder to IPO ’or else’,” Stokes said. “Unless something dramatically changes in the market, I don’t think it would make sense.”
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