June 19 -- BHP Billiton Ltd. credit default swaps rose on concern the world's largest mining company may need to borrow to finance any bid for aluminum producers Alcoa Inc. or Alcan Inc.
Shares of New-York based Alcoa yesterday rose to a six-year high after the Times of London said Melbourne-based BHP is reviving plans for a $40 billion takeover. Merrill Lynch & Co has been hired to advise BHP on a possible bid for Montreal- based Alcan, Reuters said yesterday.
A five-year rally in metal prices has fueled $98 billion of takeover bids in the industry this year. Buying Alcan or Alcoa would add to the 9 percent of earnings BHP gets from aluminum, helping it to diversify from copper and iron ore.
``If BHP makes a cash offer it would result in some weakening in its credit quality,'' Michael Bush, head of fixed interest credit research at National Australia Bank Ltd., said today in Melbourne. ``Spreads widened because the rumors have grown a few more legs.''
Credit-default swaps based on $10 million of BHP's bonds rose to $14,000 from $11,500 overnight, according to JPMorgan Chase & Co. The contracts hadn't traded as of 9:15 a.m. Sydney time. The five-year contracts allow traders to bet on a company's ability to repay its debt. An increase suggests deteriorating credit quality.
BHP Billiton won't comment on rumor or speculation, spokeswoman Samantha Evans said today.
Alcoa has bid $27.7 billion for Alcan to create the world's largest aluminum producer, an offer which was rejected.
Aluminum prices have almost doubled in the past four years, partly because of increasing demand in China.
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