BHP hybrid raising in doubt after week of market volatility

Andrew Mackenzie, chief executive of BHP Billiton, speaks at the Minerals Week 2015 seminar in June. Photo: Stefan Postles

BHP Billiton could yet walk away from the hybrid fund-raising it has been spruiking to global investors over the past two weeks, in the wake of weak credit markets and last week's extraordinary market volatility.

While it is understood that no decision to cancel the raising has been taken, BHP will spend the next few days assessing the market's appetite for the debt instrument.

The company is believed to be willing to walk away from the process if it can't complete the transaction on its preferred terms, and has flexibility despite the commodity price crunch.

BHP believed the timing of the raising was opportune when it launched in late September, but that was before last week's wild volatility in resources shares, bonds and insurance swaps, which was focused on Swiss miner Glencore but affected many miners.

One lead manager told Reuters that a delay of the process was possible.

"If the price isn't right, then it will return to the market or [raise money] in stages when conditions improve. The company would like the hybrid but it's not in desperate need, and it won't accept any price," he said.

The cost of insuring against BHP's five-year debt has almost doubled over the past year, as the South32 demerger and a rise in full year dividends coincided with a broader collapse in commodity prices.

If it goes ahead, the raising is expected to bring in up to $US5 billion, and is expected to be focused on protecting the A+ credit rating that Standard & Poor's has bestowed on BHP. 

The company has also been rated as A1 by rival ratings agency Moody's.

Standard & Poor's indicated on September 22 that the hybrid issue would improve BHP's credit metrics.

"In our view, a successful issuance of these hybrids will mitigate further deterioration in BHP Billiton's metrics in 2016 due to lower commodity prices," the agency said.

The raising was expected to target euro, sterling and US currencies.

BHP's Australian shares have been sliding since May and last traded at $22.60.

It is expected to publish October quarter results on October 21 and hold its London general meeting on October 22.