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