Diversified miner BHP Billiton (ASX:BHP) announced that Standard & Poor’s has downgraded their credit rating from A+ to A. In similar fashion, their senior secured notes were also lowered, to A, from A+. Along with their subordinated notes, which were lowered to BBB+, from A-.
Furthermore, BHP has also been placed on ‘CreditWatch with negative implications’. Aiming to resolve the CreditWatch following the release of BHP’s results for the half year ended 31st December 2015.
S&P downgraded BHP’s credit rating due to a multitude of factors. Their first justification was BHP’s vast exposure to the current volatility in commodity prices. Particularly that of crude oil and iron ore. S&P believes that BHP’s current exposure to the dampening commodity prices could put further pressure on their balance sheet.
Secondly, S&P considered the slowdown in China, particularly the contraction in steel production, as another factor that could possibly continue to decrease earnings.
Moreover, S&P assessed BHP’s current internal policies, particularly that of their ‘Progressive Dividend Policy’. Believing that if the global miner persists with this policy, there is a possibility that they will lower their credit ratings further. S&P will consider this, along with the release of BHP’s half year results, as indicators on whether they should further downgrade.
Investors have reacted negatively to the announcement, with BHP down 0.9%, to $15.11 (As at 10.11am AEDT). BHP has been vastly exposed to the volatility in China, along with the ongoing dampening of commodity prices. Losing almost 15% of its value year-to-date, and over 43% in one year. Decreasing its market capitalisation to less than A$50 billion.
Author: Ben Khouri
Feb 02, 2016
Ben Khouri is a financial editor for Wise-Owl with a particular focus on the top ASX 300 companies. Having a vast background in economics and finance, Ben provides financial commentary & analysis as well as global market updates, which guide investors in devising investment strategies. Ben specialises in analysing economic data and global events from around the world and examines the impacts they have on the major equity markets.