BHP could target petroleum, potash

Reuters | Tue, 05 Jan 2010 11:19

[miningmx.com] -- ALL eyes are on what BHP Billiton will do with its $10bn-plus cash pile once it has a clear idea about the fate of the iron ore joint venture with Rio Tinto.

While the company, which has a net gearing of just 12%, says it has plenty of projects it could invest in internally, investors and bankers say it could easily chase a big acquisition, with expansion in petroleum or potash seen as potential targets.

"BHP is more than likely to do a big deal. Hopefully they will not buy their shares back, which is a waste of money," said Robert Hook, a fund manager with SG Hiscock & Co, which manages about A$1.6bn in Australian shares.

Australia's Woodside Petroleum is seen as an obvious target for BHP, but Woodside's 34% owner, Royal Dutch Shell, does not look like a seller after investing A$862m in the company's equity raising in December.

So BHP might have to look offshore for a petroleum acquisition.

Infrastructure is another area poised to generate deals, with bankers betting on more privatisations by governments.

"In the Australian market, clearly infrastructure will be quite important, and actually it will be around the world as governments seek to maintain crumbling infrastructure as well as manage budget deficits," Carapiet said.

"So I think infrastructure's going to be active."

In Australia, the Queensland state government plans to float the A$7bn Queensland Rail coal transport business, but miners and rival rail group Asciano are pressing for separate sales of the trains and tracks.

The New South Wales state government is slated to sell off power assets worth up to A$6bn with a formal due diligence and sale process expected to start next month.

Deal making in Australia is expected to accelerate in 2010, with activity seen dominated by financials, resources and consumer-driven sectors, and the Aussie dollar's strength likely to play a role, bankers say.

Last year, Australian companies raised about A$100 bn ($91bn) primarily to cut debt and bankers say many firms can now leverage up their balance sheets to make acquisitions as the economy recovers from last year's slump.

Armed with a strong Aussie dollar, those cashed up buyers might be willing to chase deals offshore, while foreign owners of Australian assets might look to take advantage of the currency's strength to take profits on the sale of assets Down Under.

As debt markets gradually open up, this year should also mark the return of deal making among private equity funds.

"Last year was all about equity and recapitalising balance sheets. This year will be much more balanced in terms of the mix of transactions you'll see," said Rob Stewart, co-head investment banking at Credit Suisse, who expects more deals in 2010.