BHP Billiton have lined up their funding for the Potash Corp. purchase

BHP Billiton have lined up their funding for the Potash Corp. purchase. That is all very well, but you have to have a willing seller first of course. Reuters reported Friday: BHP signs jumbo $45 bln Potash bid loan. As the story suggests, BHP Billiton plan to pay this back pretty soon: "The loan comprises a $25 billion, 364-day bridge loan to bond issue; a $10 billion, three-year term loan; a $5 billion three-year revolving credit facility; and a $5 billion, four-year revolving credit facility.
The 364-day facility includes a one-year extension option."



Do I understand that right? 25 billion over one year, extended to two years, 10 billion over three years and two separate five billion Dollar revolving credit loans over three and four years respectively. As BHP Billiton said in their conference call at the end of the financial year just passed: "And as you can also see, we once again managed to convert those very healthy margins into strong cash flows. Second half operating cash flow rose by over 100 per cent when compared with the first half. What shouldn't be lost on investors is the link between strong margins, superior returns, and the ability to regenerate and grow ones business."



In response to the levels of gearing that are going to be taken on, you will remember from our recent message on BHP that this is the lowest gearing in the current format (of the company), that BHP is OK with this. Check out this answer that Marius Kloppers had on the conference call: "...we're very comfortable that in any foreseeable scenarios that we've run, and we run extensive scenarios both to the up and down side, that what we're taking on here is very manageable, uhm and we are genetically incapable of thinking about hedging."



At the year-end BHP Billiton delivered net operating cash flows of 17.9 billion Dollars. Lower than last year and about the same as 2008. Their Capex bill last year was 9.3 billion Dollars, the year prior nearly 9.5 billion Dollars. I guess after all things considered, 45 billion Dollars might sound like a monster loan, but perhaps not as much as you think. What is laughable now is that their interest bill is so low, 421 million US Dollars, and you could bet your bottom Dollar that these facilities are about the cheapest that they could get their hands on. With the view, should the deal go ahead that there will be bonds issued in due course.




So, you need the money now, if the deal goes ahead, and then there will be restructuring in due course. That is all. And the parties providing the finance would probably get first dibs on any bond issuance. The Sydney Morning Herald suggests that the Sinochem rumour of them countering BHP Billiton's bid might well be true, but they could fail at two points. One, first and foremost, it is too big to swallow a deal that size for Sinopec, secondly, the Canadian authorities would say no way. Check it out: Sinochem moves on BHP target. I still maintain that BHP Billiton are the only company at this size and scale who are able to do this deal. Perhaps Vale at a stretch.



In their field, I am sure that Exxon Mobil with a market cap of 309 billion Dollars, annual revenue of 310 billion Dollars and EBIDTA of 47.2 billion Dollars could buy it no problem. Wow. Wow. Wow. Last year Exxon Mobil paid their ordinary stock holders 130 US cents in dividends. There are 5.09 billion shares in issue, that is 6.6 billion Dollars worth of dividends. In 2008 (a monster year) the company had operational cash flows (and asset sales) of 65.7 billion Dollars. You see?