BHP Billiton's $55 bln loan on hold after green light

By Zaida Espana and Tessa Walsh

LONDON (Reuters) - Bankers working on a jumbo $55 billion (31 billion pounds) loan backing miner BHP Billiton's (BLT.L)(BHP.AX) hostile bid for peer Rio Tinto (RIO.L)(RIO.AX) welcomed regulatory clearance of the acquisition on Wednesday, but will have to hold the huge financing on balance sheet over a difficult year-end.

Australia's competition watchdog gave regulatory approval for BHP Billiton's proposed $114 billion bid for Rio Tinto on Wednesday, which bankers view as a positive development in the long M&A process.

Further syndication of the $55 billion loan will remain on hold before the European Commission's first in-depth review of the transaction on January 15, banking sources told Reuters LPC, but pricing on the loan is likely to be increased if it is drawn due to deteriorating loan market conditions, sources said.

"We are still awaiting EU clearance, today's green light is one of the many steps BHP Billiton needs to get the deal approved, so there is no immediate effect on the syndication," a banker close to the deal said.

"Loan pricing is moving materially, risk is being fundamentally repriced," a head of loan syndicate said.

News of BHP Billiton's regulatory approval comes on the same day that rival miner Xstrata (XTA.L) dropped plans for a $10 billion takeover bid for Lonmin (LMI.L).

"The current lack of clarity and certainty regarding the future availability of credit introduces significant risks into the financing package available to Xstrata," Xstrata's chief executive Mick Davies said in a statement.

Hostile loan and bond market conditions, the soaring cost of bank funding in the interbank market and the increasing scarcity of capital however continue to challenge BHP Billiton's $55 billion loan, which is the biggest ever loan to be underwritten in Europe.