UPDATE 1-BHP Billiton makes rare return with A$1 bln bond offer

* Investors say order book of A$2 bln

* Final bond margin tighter than initially marketed

* Investors welcome rare BHP offer

(Add pricing details, comments)

By Cecile Lefort SYDNEY, Oct 9 (Reuters) - Global mining giant BHP Billiton

made a return to the Australian bond marketafter an 11-year absence with a A$1 billion ($1.02 billion)five-year issue paying 90 basis points over bank bill swap rate.

The issue was heavily oversubscribed with talk of a totalorder book around A$2 billion, according to one participatinginvestor. He said every account was scaled back and the notespaid a tighter margin than the 95 basis point spread initiallymarketed.

There was so much demand that the issue paid less thanAustralian banks, which stand among the world's top financialinstitutions. They are rated AA-, which is higher than BHP'sA+/Stable/A-1 by Standard & Poor's and A1/Stable/P-1 Moody's.

Investors thought the bond issue offered fair value comparedwith BHP's offshore issues. One fund manager estimated a pick upof around 20 basis points over a euro bond, while anotherinvestor who compared it with BHP's U.S. dollar bond offers sawonly a marginal premium.

All three buyers, who asked not to be named because theywere not allowed to speak to the media, said they welcomed therare offer from a borrower that usually sources its funding inEurope and the United States.

"It finally got here," summarised an investor who had metBHP in recent years in the hope of persuading the firm to comeback with an Australian bond issue.

All three investors also praised BHP's credit story, andwere unconcerned about the recent fall in commodity prices and aslowdown in Australia's mining boom.

"It's an excellent company with great assets and even if itdownsizes its production, it will still make large profits,"said one, adding that he saw no risk of a downgrade.

One bond holder said he bought the issue for one of hisfunds which can invest only in Australian dollar bonds.

The issue was jointly managed by Australia and New ZealandBanking Group and Commonwealth Bank of Australia.($1 = 0.9796 Australian dollars)

(Reporting by Cecile Lefort; Editing by Daniel Magnowski)

((cecile.lefort@thomsonreuters.com)(612 9373 1234)(ReutersMessaging: cecile.lefort.thomsonreuters.com@reuters.net))

Keywords: BHP BONDS/