BHP Downgraded by Moody's as Commodity Rout Weighs on Profit

  • World's biggest miner cut to A3 from A1, with negative outlook
  • Sees credit metrics `substantially' weaker in 12 to 24 months

BHP Billiton Ltd.’s credit rating was cut two levels by Moody’s Investors Service as lower commodity prices are set to weigh on the world’s biggest mining company’s earnings even after it cut its dividend and spending.

The assessment was reduced to A3 from A1, Moody’s said in a statement Thursday. The ratings firm said it has a negative outlook on the company and expects its credit metrics to remain “substantially weaker” in the next year or two.

Though the agreement with Brazilian authorities this week over compensation for the deadly Samarco dam spill and BHP’s decision last month to lower its dividend are positive steps, the mining sector is experiencing a fundamental shift amid waning demand and weaker prices, Moody’s said.

“Following BHP abandoning its progressive dividend we thought Moody’s rating would likely be limited to a one-notch downgrade,” National Australia Bank Ltd. analyst Michael Bush said Friday in a note to clients after the Moody’s rating change.

BHP rose 1.7 percent to A$17.54 at 10:01 a.m. in Sydney on Friday, trimming its decline this year to 1.8 percent.

Price Pressure

The largest miners are trying to weather the rout in commodity prices by cutting unprofitable output and selling assets and shares to reduce debt. Anglo American Plc last month became the first major London-based miner to be rated junk. BHP now has the fourth-lowest investment-grade rating from Moody’s.

BHP “remains committed to maintaining its strong balance sheet through the cycle,” the Melbourne-based producer said in a statement.

Standard & Poor’s this week maintained BHP’s rating after cutting it to A from A+ a month ago, while Fitch Ratings affirmed the producer at A+ with a negative outlook.

The downturn in the mining sector is likely to be longer than previously anticipated, Moody’s said in its statement. “Supply imbalances, particularly in iron ore and petroleum products, which are the major earnings and cash flow drivers for BHP Billiton, will maintain their downward pressure on prices for several years,” the ratings agency said.

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