London 18/12/2015 - Rating agency Moody’s has placed the ratings of BHP Billiton on review for a possible downgrade, it said on Friday.
The miner has been hit by a fall in commodity prices which has resulted in a slide in its share price – its stock was trading around ten-year lows of 709 pence on the London Stock Exchange.
The review was prompted by the precipitous decline and persistent weakness in commodity prices and follows the recent downward revisions of Moody's oil and natural gas price assumptions and Moody's base metals and bulk commodity prices.
The rating agency said that further pain was ahead for commodities as it predicted that the price for BHP Billiton's copper would average $2.15 per pound in 2016 ($4,740 per tonne). This compares with a current price of $4,634 on the LME.
"The review for downgrade reflects Moody's expectation that weak commodity prices will persist for the next several years, significantly reducing BHP Billiton's earnings and cash flow generation," says Matthew Moore, a Moody's vice president and senior credit officer.
"As a result we expect BHP Billiton's credit metrics to deteriorate beyond our expectations for the current rating, absent further counter-measures," he said.
Moody’s will now review BHP’s ability to reduce ongoing dividends.
"In the unlikely event that BHP Billiton takes no material counter-measures, the firm's ratings are very likely to be downgraded. In light of the severe and broad-based declines in commodity prices, a downgrade could remain a possibility, even if the firm takes counter-measures but they are insufficient to ensure a clear path for the firm's credit metrics to return to levels appropriate for an A1 rating over the next 18-24 months," the release said.
Still, a ratings downgrade is likely to be limited to one notch to A2.
The downturn in commodity prices has raised doubts about whether the miner can - and should - maintain its current dividends. In a financial review earlier this month, the company it said it is "committed to a progressive dividend policy" despite a 52-percent slump in full-year profits.
(Editing by Perrine Faye)