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Warning to BHP after S&P cuts its credit rating

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Ratings agency Standard & Poor’s has weighed in on BHP Billiton’s progressive dividend policy after lowering the resources giant’s credit rating by a notch.

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S&P has cut BHP’s long-term credit rating from A+ to A and warns it may be lowered further if the miner continues with its progressive dividend policy while its cash flows are pressured by lower commodity prices.

It’s also placed BHP on credit watch with negative implications until the release of the company’s half year earnings, due on February 23.

S&P says the cut in rating reflects the sharply lower price forecasts for BHP’s portfolio that includes iron ore, oil, copper and coking coal.

“Under our revised assumptions, we forecast a material drop in BHP Billiton’s results in the coming 18 months, with key credit metrics well below the levels we consider to be consistent with an ‘A+’ rating,” S&P said in a statement on Tuesday.

The world’s biggest miner has been reeling as prices for all its major products have plunged to multi-year lows due to fears of lower demand from China, and excess supply.

In January, BHP slightly lowered its iron ore production target and flagged a further $1 billion hit to its bottom line, after earlier writing down $US7.2 billion ($A10.41 billion) in the value of its US shale assets.

The company said it was focused on preserving financial strength to ride out the global commodities rout, which analysts said was a sign the company was looking to protect its credit rating.

On Tuesday, BHP again reiterated that it remains committed to maintaining its strong balance sheet through the cycle.

The global miner has been under pressure from investors and analysts to abandon its policy of holding or increasing its dividend at every result, as it is having to rely on debt to fund the payout.

S&P has also placed rival mining giant Rio Tinto’s long term `A-` rating on `credit watch with negative implications’ and says it could be lowered a notch if the company does not take further supportive measures such as reducing costs, divesting assets or reviewing its financial policy.

BHP shares, which have slid by about 50 per cent in the past year, closed at $15.25 on Monday.

– AAP

 

 

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