Fortescue Metals Group doubles down

Fortescue announced a US$1 billion capital raising… and ended up with twice as much as they'd initially asked for

Scott Phillips (TMFGilla)

Scott Phillips is The Motley Fool’s Chief Investment Officer in Australia. He is Advisor of The Fool’s flagship investment service, Motley Fool Share Advisor and the Portfolio Manager of Motley Fool Everlasting Income and Premier Portfolio, as well as running our most premium service, Motley Fool Platinum. He is passionate about investing, having managed his own portfolio for over 15 years. A dyed-in-the-wool Fool (in the best way), he has been a member of The Motley Fool since 1999. Scott holds a Bachelor of Commerce (Management) and a Graduate Diploma of Accounting. Before joining The Fool, Scott worked in various Sales and Finance roles in industry, which has allowed him to see the good, bad and the ugly of corporate management close-up. Giving him a great understanding of the way businesses run – and what separates the business wheat from the chaff – Scott wholeheartedly agrees with Warren Buffett when he said he was a ‘better investor because I am a businessman and a better businessman because I am an investor’. Scott left a successful career to follow his passion – helping our members achieve the best possible investment returns, and helping Australians learn to better manage their money. It’s no surprise he ended up at The Motley Fool.

Published March 15, 2012 9:50 am AEDT

Fortescue Metals Group Limited (ASX: FMG) has wowed the market – and confirmed the boom is still well and truly underway – with its most recent bond issue.

After reporting plans to issue US$1 billion in high-yield notes, Fortescue ended up raising double that amount – US$2 billion at a coupon of 6% for the first billion, and 6.875% for the second billion dollars.

The financial media are calling this evidence of the international market's appetite for Australian bonds, and it is. It's also a clear sign that investors are prepared to back the continuation of the mining boom, as we suggested yesterday – but with an emphatic doubling of the funds raised.

The raising is good news for fellow miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), and comes on the heels of news of new debt raisings from both Woolworths Limited (ASX: WOW) and Telstra Corporation Limited (ASX: TLS).

I hope – for the sake of mining company shareholders and the Australian economy – that this show of faith will be rewarded by long term growth, and ceaseless Chinese demand. The contrarian in me keeps reminding me of the capital raisings (both debt and equity) throughout – and right up to the peak of – the tech boom.

Like playing musical chairs, everything seems wonderful until the music stops. I hope I'm wrong.

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Scott Phillips is a Motley Fool investment analyst. Scott owns shares in Woolworths and Telstra. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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