FOCUS - BHP dividend increasingly vulnerable after S&P downgrade, shares tumble

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Kathleen Retournekathleen.retourne@fastmarkets.comJoint News Editor - Europe+44 (0) 20 7337 2144

London 02/02/2016 - BHP Billiton is under pressure to cut its dividend after it was downgraded by ratings agency Standard & Poor, analysts said.

S&P lowered the rating on the Australian miner's senior secured notes to A from A+ and on its subordinated notes to BBB+ from A-. The agency may lower its ratings one notch further after BHP releases its earnings on February 23.

This followed a report from ratings agency Moody's, which placed BHP under review for a possible downgrade.

For BHP Billiton to hold onto its ratings, which are still the highest in the sector, significant counter-measures are needed. The obvious resolution would be to cut its dividend policy, analysts said.

"The company is highly protective of its balance sheet and rating, which can only mean one thing and what people have been saying for a long time - the dividend is unsustainable and is vulnerable to a cut. The question is by how much," SP Angel said in a note on Tuesday.

BHP Billiton is "committed to a progressive dividend policy", it said in a financial review in November, despite a 52-percent slump in full-year profits.

The miner intends to at least maintain or steadily increase the dividend at each half-yearly payment. The full-year 2015 dividend was up two percent on the previous year at 121 cents per share.

But the company has become a victim of its own success, with growth in the dividend outpacing its ability to increase earnings, particularly while commodity prices have been on a downward trajectory, Investec said.

"Our forecasts for BHP assume a dividend payment regime based on a 25 percent pay-out ratio on sustainable operating cash flows[, which] would offer a resilient minimum base for ongoing shareholder returns, while returning BHP to pay-out ratios akin to historical levels," it added.

Investors have become increasingly nervous - BHP Billiton's share price on the London Stock Exchange (LSE) was down 6.89 percent at 631.4 pence, considerably lower than the 1,484.5p it traded at this time last year.

Last month it warned of further impairment charges for its current fiscal year, expecting its underlying attributable profit in the half year ended December 2015 to include additional charges of $300-450 million related to redundancies, inventory writedowns and global royalty and taxation matters.


(Additional reporting by Vivian Teo, editing by Mark Shaw)



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