BHP Announces Plan to Reduce Debt (ASX:BHP)

BHP Group Ltd [ASX:BHP] revealed its plan to reduce some of their debt balance and interest payments.

BHP is a natural resources company producing minerals like iron ore as well as oil and gas exploration.

What’s the plan?

The company said they’ll be starting a subordinate note repurchase plan. A subordinate note is basically debt that ranks lower than other debts.

The plan, which is already approved by the board, targets US dollar and euro bonds that were issued in 2015. The company said they’ll be repurchasing up to a max of US$1.9 billion (this excludes accrued interest).

The scheme will last until 30 September 2020 and BHP will be funding the scheme from surplus cash.

As per their latest FY20 results, which they announced in mid-August, BHP has US$8.1 billion in free cash flow and US$12 billion in net debt. Their yearly results also showed revenue was down 3% from last year and profit was US$7.95 billion, a 4% decrease too.

The company is looking ahead at an uncertain future and expects that all major economies will shrink in 2020, and this includes China.

The company expects a lot of uncertainty in the long term with electrification of transport and decarbonisation of power. They are also looking to divest their thermal coal mines.

As they mentioned on theFY20 report, ‘coal power is expected to progressively lose competitiveness to unsubsidised renewables on a new build basis in the developed world and in China.

What’s next?

At time of writing, the BHP share price was trading at $37.85. That’s 1.69% lower than yesterday and close to 5% lower from the beginning of the year.

BHP is also trading ex-dividend. That is, anyone who buys shares today won’t be receiving the declared dividend.

During their FY20 results, the company announced a dividend of (US) 55 cents a share which will be paid to shareholders on 22 September. The total dividend for the year is US$1.20 per share, 10% lower than last year.

If you are interested in dividend plays check out editor Greg Canavan’s free report ‘Five Dividend Stocks set to Thrive in the Post-Pandemic Era’.

You can access it here.


Selva Freigedo

Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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