BHP credit rat­ing cut at S&P on lower price fore­casts

The Pak Banker - - BUSINESS -

BHP Bil­li­ton Ltd., the world's big­gest min­ing com­pany, had its credit rat­ing cut at Stan­dard & Poor's as pro­duc­ers reel from cra­ter­ing prices driven by con­cern over fal­ter­ing growth in China, the largest con­sumer of raw ma­te­ri­als.

The rat­ing was low­ered to A from A+ to re­flect changes in price fore­casts and "very chal­leng­ing mar­ket con­di­tions and in­creased de­mand un­cer­tainty over the com­ing years," S&P said in a state­ment on Mon­day. Rat­ings for the Mel­bourne-based miner may be low­ered one notch fur­ther af­ter it re­leases earn­ings on Feb. 23, S&P said.

Plung­ing com­mod­ity prices are pil­ing pres­sure on Chief Ex­ec­u­tive Of­fi­cer An­drew Macken­zie's pledge to main­tain a "solid A" credit rat­ing. The com­pany, which re­ports first-half profit later this month, may need to raise as much as $10 bil­lion through a share sale and scrap its div­i­dend if it is to re­tain the com­mit­ment, ac­cord­ing to Liberum Cap­i­tal Ltd. an­a­lyst Richard Knights.

"There's cer­tainly a lot of pres­sure for them to act lead­ing into their next earn­ings an­nounce­ment," An­thony Ip, a Syd­ney-based credit sec­tor spe­cial­ist at Cit­i­group Inc., said by phone. In rais­ing the prospect of a fur­ther down­grade fol­low­ing BHP's earn­ings re­sult, S&P has ef­fec­tively set a time­line for the pro­ducer to make fur­ther cuts to cap­i­tal ex­pen­di­ture and re­vise its div­i­dend pol­icy, Ip said.

BHP fell 0.8 per­cent to A$15.13 at 10:39 a.m. in Syd­ney trad­ing, ex­tend­ing its de­cline in the past year to 45 per­cent.The cost of in­sur­ing BHP debt rose 2.3 ba­sis points on Mon­day to 231 ba­sis points, ac­cord­ing to data provider CMA. It last month reached as much as 270, the high­est since the global credit squeeze of 2009. S&P also placed ri­val Rio Tinto Group, the sec­ond­biggest miner, on Cred­it­Watch Neg­a­tive due to lower price fore­casts for iron ore, alu­minum and cop­per.

The world's largest min­ing com­pa­nies are cut­ting div­i­dends, slash­ing debt, sell­ing as­sets and ac­cel­er­at­ing spend­ing cuts as they grap­ple with de­clin­ing prof­its as com­mod­ity prices con­tinue to tum­ble. Pres­sure on the sec­tor won't re­lent in 2016, Rio Tinto Group Chief Ex­ec­u­tive Of­fi­cer Sam Walsh wrote last month in an in­ter­nal e-mail to staff, as the pro­ducer im­posed a salary freeze for this year.

BHP will cut its div­i­dend pay­ment for the six months to Dec. 31 by half to 31 cents, ac­cord­ing to Bloomberg Div­i­dend Fore­casts. "The mar­ket de­bate has prob­a­bly moved on from if they will cut, to how large the cut will be," Cit­i­group's Ip said.

The pro­ducer "has the strong­est credit rat­ing in the sec­tor and re­mains com­mit­ted to main­tain­ing its strong bal­ance sheet through the cy­cle," BHP said Mon­day in a state­ment not­ing S&P's re­view.

The com­pany has an A+ credit rank­ing at Fitch Rat­ings, the fifth­high­est score, and an equiv­a­lent A1 as­sess­ment at Moody's In­vestors Ser­vice, which has the firm on re­view for down­grade and is con­tem­plat­ing po­ten­tial cuts for a slew of min­ers across the world. Al­most ev­ery ma­jor raw ma­te­rial is worth less now than two years ago, from iron ore to oil to crops and base me­tals.

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