INVESTING

BHP profit is down but bonds keep paying

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This week Money asks fixed income experts FIIG securities where to invest and their pick is BHP Billiton.

BHP's net profit after tax is down, as is its share price.

But no matter what happens in markets, the bonds it issued in October have to keep paying interest and the $100 face value will be returned to investors at maturity as long as BHP continues to operate.

BHP

This is a good reason to consider buying the bonds in preference to the shares when commodity prices are low.

Company description

BHP Billiton (ASX: BHP; rated A+/A1) is among the world's largest producers of major commodities, including iron ore, metallurgical coal, copper and uranium, and has substantial interests in conventional and unconventional oil and gas and energy coal.

It is a dual-listed company comprising BHP Billiton Ltd and BHP Billiton Plc. BHP Billiton was created through the merger of BHP Ltd (now BHP Billiton Ltd) and Billiton Plc (now BHP Billiton Plc), which was concluded on June 29, 2001.

BHP Billiton Ltd has a primary listing on the Australian Securities Exchange and BHP Billiton Plc has a premium listing on the London Stock Exchange, with a secondary listing on the Johannesburg Stock Exchange.

Investor information

BHP Billiton issued multi-currency subordinated bonds in US dollars, euro and sterling totalling $US6.5 billion (about $9 billion).

The maturity dates of each of the bonds varies but there is one $US-denominated bond with a first call/expected maturity in 10 years. The expected yield (as at November 2, 2015) to the first-call date is 6% a year.

  • Minimum investment per bond is $US200,000 for the $US-denominated bond, €100,000 for the euro-denominated bond and £100,000 for the sterling-denominated bond. 
  • Among other risks, investors take on foreign currency risk - that is, that the currency moves up or down and can provide unexpected changes in value and returns on the bond if sold before maturity. 
  • FIIG is a dealer and we take a small brokerage fee when we transact. 
  • A custody service fee is also charged. 
  • The suboridnated bonds are only available to wholesale investors.

Note: The return quoted is accurate as at November 2, 2015, but subject to change

BHP graph

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