BHP Billiton Limited to issue bonds: Here's what you need to know

BHP Billiton Limited (ASX:BHP) could issue debt at a much cheaper rate than Fortescue Metals Group Limited (ASX:FMG) was ever going to achieve.

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BHP Billiton Limited (ASX: BHP) has reportedly launched an Australian dollar bond issue in what the Fairfax press is reporting could be one of the cheapest bond fundings ever achieved in the local bond market.

According to Fairfax, BHP Billiton said that it intends to issue "benchmark-sized" five-year bonds paying a margin of 90 basis points over the five-year swap rate (2.35%), equating to roughly 3.25%. The move comes after three and five-year "swap" rates hit fresh all-time lows based on heightened expectations of further interest rate cuts locally.

The news regarding BHP Billiton's debt raising comes just one day after smaller rival Fortescue Metals Group Limited (ASX: FMG) was forced to pull its US$2.5 billion bond issue. The miner couldn't agree to terms with investors who wanted a 9% return to compensate for the high level of risk associated with Fortescue and the iron ore industry in general.

After having descended more than 14% over the course of 11 trading days, BHP Billiton's shares have returned to steady growth. While they are trading 1.5% higher today, they've jumped 5.7% since bottoming out on Monday.

Should you buy?

Although BHP Billiton remains my miner of choice given its low cost operations and high level of diversification, I would still be reluctant to buy the stock today. Sure, it is well equipped to weather the commodities storm, but its cash flows will still be impacted as its key commodities continue to plummet in price. As such, I would suggest holding onto the shares that you own, but refraining from buying anymore, for now.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest. The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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