BHP BHP Group Limited

By Christopher Whittall And Mike Cherney 

BHP Billiton Ltd. is planning to sell around $3 billion of U.S. dollar hybrid bonds this week, according to a deal notice released Tuesday and a person familiar with the deal.

The plan is the latest test of reviving demand for commodity-related investments. Investors this year have sold mining-company bonds following a slowdown in China and a fall in commodities prices. But gains over the past week in commodity-related asset prices are likely to boost demand for BHP debt, said Henry Peabody, who helps oversee the $1.2 billion Eaton Vance Bond Fund.

"That helps the prospects for this deal," he said. "Investors should be willing to give the company capital," he said.

The average yield on debt issued by metals and mining companies hit a six-year high of 6.4% in late September, according to Barclays, compared to a recent low of 3.3% in April. Yields rise as prices fall.

The average yield on mining companies' debt has since dropped to 5.3%, according to Barclays, following a bounce in commodities prices.

The miner is also planning to sell corporate hybrid bonds denominated in euros and sterling, though no official announcement has yet been made, according to people familiar with the deal.

Hybrid bonds are a risky form of corporate debt that combine aspects of both debt and equity. Interest payments can be deferred, and the bonds are junior to all other forms of debt in the event of a default. Companies issue the debt because it allows them to raise capital without diluting existing shareholders.

Investors are being offered a yield of around 7% on a 60-year dollar bond that can be retired after 10 years, according to a person familiar with the deal. The pricing of that bond, scheduled for Wednesday, will be used as a reference point to price a second 60-year dollar bond that can be retired after five years, the person said.

BHP Billiton said in a statement filed with Australian Securities Exchange last month that it would begin marketing Sept. 28 a multi-currency hybrid corporate bond that it expected to be treated as half debt, half equity by ratings companies. BHP Billiton is rated A1 by Moody's Investors Services and A+ by Standard and Poor's.

The low interest-rate environment makes it an "opportune moment" to consider issuing these securities, the company said. The proceeds will be used for general corporate purposes, including refinancing other near-term debt when it comes due, the company said.

Philippe Berthelot, head of credit at Natixis Asset Management, said he hasn't decided whether to buy the bonds.

Mr. Berthelot, whose firm oversees $355 billion, said that corporate hybrid securities have been one of the worst bond investments so far this year in terms of performance.

Corporate hybrid bonds recorded a negative total return of around minus 4% in September, according to Barclays, driven by a sharp selloff in the hybrid debt of auto maker Volkswagen AG.

"That is why you have to think," said Mr. Berthelot, who said he would make his final decision depending on the pricing of the new BHP Billiton debt.

Bank of America Merrill Lynch, Barclays PLC, BNP Paribas SA and Goldman Sachs Inc. are underwriting.

Write to Christopher Whittall at christopher.whittall@wsj.com and Mike Cherney at mike.cherney@wsj.com

(END) Dow Jones Newswires

October 13, 2015 18:37 ET (22:37 GMT)

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