BHP Billiton to spin off South32 with little debt

MELBOURNE (Reuters) - BHP Billiton has positioned its South32 spin-off for future growth, tipping in much less debt than expected to the new company made up of BHP's unloved assets when it lists in May.

The world's biggest miner released documents on Tuesday detailing the performance of South32's aluminium, manganese, nickel, silver and coal assets, long overshadowed by BHP's major iron ore, petroleum, copper and metallurgical coal businesses.

"The demerger will simplify BHP Billiton and has the potential to unlock shareholder value, while creating a new global diversified metals and mining company with a significant industry presence in each of its major commodities," BHP Chairman Jac Nasser said in a statement.

In the longer term, BHP would be better placed to achieve "substantial productivity gains beyond the $4 billion per annum already targeted" by the end of 2016/17, Chief Executive Andrew Mackenzie added in a video presentation.

The hotly anticipated demerger document showed the new mid-sized miner plans to pay out at least 40 percent of its underlying earnings in dividends each half-year, roughly in line with analysts' forecasts.

It will not pay a dividend for the current financial year, which finishes just one month after the split is due to take place.

Named for the 32nd parallel south line of latitude linking its two main centres, Australia and South Africa, the company will emerge from BHP with $674 million (454 million pounds) in net debt, which is less than half the level analysts had expected.

"Their net debt is more favourable than anticipated. That obviously leaves them well positioned to talk about investment strategy," said Chris Drew, an analyst with RBC in Sydney.

"The organic growth within the portfolio is limited, so looking for growth via M&A makes sense," he said.

Analysts have valued South32 at around $13 billion, or lower if using current weak commodity prices.

BHP did not give any estimate on the market capitalisation of South32, but said the historical valuation on the invested capital was $12.95 billion.

BHP said the South32 assets contributed net profit after tax of $738 million for the half year to December 2014, which was more than 50 percent higher than some analysts had forecast for the full year to June 2015.

"It's generally a pretty good set of numbers from a high level view," Drew said.

The total one-off costs of implementing the demerger are estimated to be around $738 million.

Shareholders are set to vote on the spin-off on May 6, with South32 shares expected to list on the Australian, Johannesburg and London stock exchanges on May 18.

(Reporting by Sonali Paul; Editing by Richard Pullin)