Mining and Heavy Industries

BHP credit rating slips, dividends threatened

Iron ore stockpiles at Port Hedland. Photo: BHP Billiton

US agency Standard & Poor’s has downgraded BHP Billiton’s credit rating this week, warning the mining giant it could slip further if it continues to deliver the same dividends to shareholders despite the slump in commodity prices.

BHP has maintained a policy of not allowing the slowing mining sector to cut into its dividends.

But in a review issued on Monday night, S&P downgraded the miner’s rating, and said it could do so again if that policy didn’t change.

S&P lowered the credit ratings of BHP Billiton Limited and BHP Billiton PLC from A+ to A. The rating of BHP Billiton’s senior secured notes was also lowered from A+ to A, and subordinated notes were lowered from A- to BBB+.

The ratings agency put the miner on ‘CreditWatch with negative implications’, and advised it would supply an update following the release of BHP’s half year results for the six months ending December 31, 2015.

Despite the ratings downgrade, the ASX, London, Johannesburg and New York-listed miner assured its investors that it still deserved their full confidence.

“BHP Billiton has the strongest credit rating in the sector,” the company said, “and remains committed to maintaining its strong balance sheet through the cycle.”

The AFR reported on Wednesday that analysts suggest the miner could cut its dividend from 62 US cents per share to 31, but said there was a “growing feeling among investors” that slashing the dividend in half may not be enough.

“If it is a protracted slowdown, perhaps cutting by 50% is not enough,” Argo Investments senior investment officer Andy Forster was quoted by the Fairfax paper, “they wouldn’t want to have to come back and cut it again.”

BHP’s ASX share price opened at $14.46 on Wednesday morning, down 3.1% on Tuesday’s close.

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