BHP, Rio Showing Bondholders $8 Billion of Love Warms Up Rally – by David Stringer and Benjamin Purvis (Bloomberg News – February 29, 2016)

Bond investors are rewarding BHP Billiton Ltd. and Rio Tinto Group after the humbled mining giants cut dividends by as much as $8 billion to repair finances.

Credit assessors aren’t yet convinced. Dollar-denominated notes issued by BHP returned 3.4 percent in the month to Feb. 26, the most since 2009, while Rio Tinto’s rose 2.1 percent, set for its biggest advance in a year, according to Bank of America Merrill Lynch’s U.S. Metals, Mining & Steel Index.

That follows three months of declines as iron ore, the top earner for both companies, in December touched the lowest in daily prices dating back to May 2009.

The world’s two biggest miners last month laid out plans for new cuts to spending after reporting steep profit declines and predicting resource prices would remain weak. BHP lowered its dividend for the first time in 15 years, while Rio earlier said it would cut its payout by as much as half.

That didn’t stop Moody’s Investors Service, which is reviewing about $200 billion of mining bonds, from cutting Rio’s credit score last week. Moody’s is still assessing BHP for a potential cut, while Standard & Poor’s has a negative outlook on the credit even after affirming the company’s rating this week.

Dividend readjustments by mining companies “are a positive for bondholders and do make them more comfortable about the investments across the sector,” said John Sorrell, head of credit at Nikko Asset Management in Australia.

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