BHP Billiton’s credit rating cut one notch by S&P, Rio Tinto may be next – by Jesse Riseborough (Australian Financial Review/Bloomberg – February 2, 2016)

BHP Billiton, the world’s biggest mining company, had its credit rating cut at Standard & Poor’s.

The rating was lowered to A from A+ to reflect changes in commodity 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 February 23, S&P said.

“Metal prices have come under pressure because of fears of lower demand from China, and excess supply remains an issue,” the rating company said in a statement. “Moreover, particularly relevant for BHP Billiton, the oversupply of crude oil in the market results in very weak oil and Henry Hub gas prices, which we now believe will last over the foreseeable future, putting further pressure on its balance sheet.”

“Under our revised assumptions, taking into account the company’s financial policy and public guidance, 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 also said.

“Our benchmarks are minimal funds from operations (FFO) to debt of 50 per cent and positive discretionary cash flow (DCF). Under revised capex and dividends assumptions, we now project FFO to debt to be between 30 per cent and 40 per cent in 2016 and in 2017. As a result, we lowered the rating by one notch to ‘A’.”

Plunging commodity prices are piling pressure on chief executive officer Andrew Mackenzie’s pledge to maintain a “solid A” credit rating.

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