Lenders Deny BHP Port Debt on Coal Worries

Posted by Joseph Keefe June 23, 2016

Australian mining giant BHP Billiton pulled a $500 million debt refinancing plan at one of Australia's biggest coal export terminals after banks were reluctant to lend to the sector, said three sources with knowledge of the process.

The decision earlier this month sets back efforts to simplify complex debt arrangements at the Newcastle Coal Infrastructure Group (NCIG) project and stalls BHP's plan to release cash tied up in the terminal as it looks to strengthen its balance sheet amid a global commodities slump.

It also underscores the plight of the industry in trying to attract financing from lenders wary of coal's commercial outlook and contribution to climate change.

BHP had approached existing and new financiers for around $500 million of new debt to replace $685 million taken out in 2007. Under the now-defunct plan, BHP was to supply $185 million of the debt and would get the rest from lenders at generous terms, according to the three sources who spoke on the condition of anonymity because of the sensitivity of the subject.

"It wasn't a problem with BHP, it was more a coal market-specific problem," said Alen Golubovic, director of infrastructure and fixed income research for FIIG Securities, adding that banks were more open to rolling over existing debt than taking on new commitments.

BHP declined to comment.

Smaller coal miners are facing similar issues in trying to refinance another Australian coal port, the Wiggins Island Coal Export Terminal, where Glencore is the main backer.

NCIG is owned by a handful of coal mining companies. BHP holds the biggest stake at 37 percent. Partners include Yancoal Australia, Peabody Energy Australia, Whitehaven Coal and Banpu.

NCIG in a June 10 statement said it was deferring the capital restructure of the $500 million tranche of debt, citing adverse market conditions.

Ratings agency Moody's promptly cut the rating of the debt to junk status.

Moody's also noted that over the past three months, Peabody Energy in the United States has filed for bankruptcy, although its Australian subsidiaries to date were unaffected, and that China's Yanzhou Coal Mining Co, which owns Yancoal Australia, has been downgraded with a negative outlook.