BHP this week priced a two-part eurobond note program, made up of EUR1.25 billion in 2.125% bonds due 2018 and EUR750 million 3% in bonds due 2024. Compare that with the tumble in its share price, which is down about 10% so far this month alone.
With a dividend yield of around 3.8% at current share prices against an after-tax cost of debt of less than 2% for the shorter dated bonds and around 2% for the longer dated bonds, the case for a debt-for-equity swap is clear. Put simply: the company could consider another share buy-back as the danger of running an undergeared balance sheet is a 1.5% to 2% higher cost of capital.
Bring on the share buy-back! I want those juicy, fully refundable franking credits!
