BHP May Take on Debt for Dividends If Finances Are Safe

  • Chairman declines to say if debt needed for this year's payout
  • BHP benefiting from a `solid A' credit rating through cycle

BHP Billiton Ltd. is ready to consider taking on debt in the short run to cover its policy of increasing dividend payouts each year but not to the extent of compromising the finances of the world’s biggest mining company, according to Chairman Jac Nasser.

“Over a short period of time, we would look at it and consider borrowing to cover the dividend, but if it risks the balance sheet over the long cycle we will not do it,” Nasser said Thursday at BHP’s annual meeting of shareholders in London after repeated queries from an investor on whether the company needed to take on debt to cover payments this fiscal year.

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“You can be assured that over time we will not risk the balance sheet,” the chairman said. BHP has the benefit of “a solid A balance sheet.”

Jac Nasser

Photographer: Carla Gottgens/Bloomberg

Nasser declined to say whether BHP is borrowing now to pay its dividend, though he said that the payout for the 2015 fiscal year that ended June 30 was covered by earnings.

Last week, BHP sold the equivalent of about $6.5 billion of bonds in dollars, euros and pounds using debt instruments that help protect its credit rating. The proceeds will be used for general corporate purposes, which may include repaying debt, BHP said in statements announcing the sales. So-called hybrid bonds protect credit metrics because they are treated as half debt and half equity by rating agencies.

BHP is seeking to protect its A+ credit grade after Standard & Poor’s and Fitch Ratings Ltd. placed it on negative watch, citing headwinds from declining commodity prices amid an economic slowdown in China, the biggest consumer of raw materials.

‘Solid A’

“Our goal is to remain solid A through the cycle,” Nasser said. “If we start to see that that isn’t the case, then we will sit back and take an overall view of where we are.”

The mining company reported a 52 percent plunge in underlying full-year earnings in August, highlighting the challenges faced by Chief Executive Officer Andrew Mackenzie in attempting to trim spending, along with debt, while it also boosts dividend payouts.

A “no” vote at the company’s annual meetings in London and Perth over the next month on a new dividend-sharing proposal could lead to the collapse of BHP’s dual-listing structure, Investor Nikko Asset Management told Australia’s Sydney Morning Herald this week.

“This is a relatively administrative measure to ensure that we most efficiently make good on our commitments to be able to pay dividends to both shareholders on an equal basis,” Mackenzie told reporters after the London meeting on Thursday.

London Commitment

“We are very committed to London,” he said. The U.K. listing “connects us very powerfully to, if you like, the world’s largest capital markets.”

BHP this week said first-quarter iron-ore output rose 7 percent, joining rivals Vale SA and Rio Tinto Group in reporting increased supply amid falling prices and a global glut.

Benchmark iron-ore prices have fallen more than 70 percent from a 2011 peak amid slowing economic growth in China and as the largest suppliers raise output to boost savings and squeeze out higher-cost rivals.

Commodities suppliers are cutting capital expenditure and debt, and seeking to bolster balance sheets with raw-material prices near the lowest in 16 years.

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