Reuters reported that mining giant BHP Billiton is talking to sub underwriting banks on a record USD 55 billion loan backing its hostile bid for rival Rio Tinto.

A banking source said that "We are talking to a number of relationship banks.” The source added that the company and mandated lead arrangers Barclays, BNP Paribas, Citigroup, Goldman Sachs, HSBC, Santander and UBS have approached around ten relationship banks to sub underwrite the loan. They said that sub underwriting banks are being asked to commit USD 2.5 billion each, with a view to holding around USD 1.75 billion after wider syndication.

The banker said that "The pricing rationale reflects the size of the deal given its size we need to make things a little more appealing to potential lenders. There is an element of new money to raise and it also reflects current market conditions.”

The large size of the sub underwriting commitments is the first major test of European banks' appetite in 2008 and will redefine market capacity.

Banks will however, be keen to lend to the world's third largest company in an environment of soaring commodity prices and the loan will not be drawn until late 2008 or beyond when the acquisition is complete. The lending decision may also be eased by favorable capital treatment under the new Basel II accord, bankers close to the deal said. BHP Billiton is targeting a high single A rating after the acquisition, which will require banks to allocate less capital against the loan.