Mining giants BHP and Fortescue worlds apart on finance front
THEY might be neighbours in the Pilbara, but Fortescue and BHP Billiton remain a long way apart when it comes to the cost of finance.
Days after BHP sold $1 billion of Australian bonds at an interest rate below 4 per cent, Fortescue has revealed its $5 billion of US borrowings will carry a minimum interest rate of 5.25 per cent.
Fortescue completed the details of the raising in New York at the weekend and said the money was raised at 4.25 per cent above Libor.
But the company said a base Libor rate of 1 per cent would apply to the deal, meaning the interest charged will never be less than 5.25 per cent.
Fortescue's credit rating is still in junk territory, with the miner rated a BB- on negative watch by S&P. The same agency rates BHP as A+ stable.
As promised when it was first proposed in September, Fortescue's latest debt facility was secured against the assets of Fortescue and its subsidiaries. Fortescue said the debt facility - which was increased from $US4.5 billion to $US5 billion on Friday - significantly improved its liquidity, which could improve further if the company consummates discussions over an asset sale.
Fortescue recently sold a power station and is expected to update the market on asset sale discussions when it reports its September-quarter results this morning.
Some analysts expect the results will include Fortescue's biggest quarterly export of iron ore.
Fortescue's Kings expansion project remains on hold, but chief executive Nev Power repeated advice that it could be restarted in December if conditions stabilise.