5% interest rate is achievable, as I said before the company must have high credit rating, current cash rate is 3% I think, I’m no expert but I think BHP credit rating allows them to borrow at cash rate + 200 basis point which is about 5%. Rates are also slightly more favorable for sovereign countries and governments. I think currently the Victorian government holds an AAA rating which means they are able to borrow at lower than 5%, wealthier countries such as Bahrain is probably even less, and that’s assuming they even need the money in the first place.
ANZ just did a deal roughly about 128 basis points above the cash rate, even though they are a bank and can get cheaper rates, if the company is big enough they are certainly to get that 5%. Although I must admit the interest rate hedge they did is a draw back, but in regards to the un-hedge proportion any drop is a bonus.
You can also borrow USD to take advantage of lower US rates if you are betting the AUD is only going to get stronger, the recent strength of the aussie dollar seemingly have a double benefit as the USD loan becomes smaller when translated into AUD and as AUD become stronger its easier to repay the USD debt, although such un-hedge decisions is risky but I have seen many top ASX stock benefiting from this recent movement.
I’m not aware of any major Capex maintenance for BBP, I have definitely used NPAT for my EPS calculation and came up with a significant figure assuming they can ride the storm, even with an offer of 40 cents it’s still low, but if you are a distress seller you’ll have no choice.
The recent run has been really good, and with today’s strong volume of the backs on low price volatility it’s a good sign that we are expecting further development of asset sales coming this quarter.
Once again its IMO only please DYOR and good luck holders.
BBP Price at posting:
12.0¢ Sentiment: LT Buy Disclosure: Held
