BHP faces loss of prized rating, Moody’s warns

Moody’s has told BHP Billiton to look at cutting dividends if it wants to keep its prized A1 debt rating.

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Ratings agency Moody’s has told BHP Billiton to look at cutting dividends and slashing more costs and spending if it wants to keep its prized A1 debt rating.

But this still may not be enough to prevent a downgrade. The agency yesterday said BHP’s rating had been put on review for a downgrade because the relentless fall in commodity prices was expected to lead to weak prices for several years, reducing BHP’s cashflow and credit metrics.

The potential downgrade will raise the chance BHP will drop, or at least pause, its progressive dividend policy.

Chairman Jac Nasser last month backed away from committing to the policy and said maintaining a “solid A” credit rating was his priority.

“The review will focus on the potentially significant countermeasures the company is able to employ — and the willingness to employ such measures — to protect its credit metrics in the lower price environment,” Moody’s analyst Matthew Moore said. “Specifically, Moody’s will be reviewing the company’s ability to further reduce operating costs and capital expenditures, as well as its ability and willingness to reduce its ongoing dividends,” Mr Moore added.

The policy to hold or raise dividends every year now costs BHP about $US6 billion ($8.4bn) a year and has come under fire from some investors.

But others have bought the stock because of its high yield.

Moody’s said the rating was very likely to be downgraded if the company took no action.

“In light of the severe and broadbased declines in commodity prices, a downgrade could remain a possibility, even if the firm takes countermeasures if 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 to 24 months,” Moody’s said.