Fortescue Metals Group Limited (ASX: FMG) has wowed the market – and confirmed the boom is still well and truly underway – with its most recent bond issue.
After reporting plans to issue US$1 billion in high-yield notes, Fortescue ended up raising double that amount – US$2 billion at a coupon of 6% for the first billion, and 6.875% for the second billion dollars.
The financial media are calling this evidence of the international market's appetite for Australian bonds, and it is. It's also a clear sign that investors are prepared to back the continuation of the mining boom, as we suggested yesterday – but with an emphatic doubling of the funds raised.
The raising is good news for fellow miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), and comes on the heels of news of new debt raisings from both Woolworths Limited (ASX: WOW) and Telstra Corporation Limited (ASX: TLS).
I hope – for the sake of mining company shareholders and the Australian economy – that this show of faith will be rewarded by long term growth, and ceaseless Chinese demand. The contrarian in me keeps reminding me of the capital raisings (both debt and equity) throughout – and right up to the peak of – the tech boom.
Like playing musical chairs, everything seems wonderful until the music stops. I hope I'm wrong.
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Scott Phillips is a Motley Fool investment analyst. Scott owns shares in Woolworths and Telstra. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).
