S & P removes BHP from credit watch

Standard and Poor’s has removed BHP from credit watch after the miner ended its progressive dividend policy.

Credit ratings agency Standard and Poor’s has removed BHP Billiton from credit watch, following the miner’s move to dump its progressive dividend policy.

BHP’s (BHP) decision to link dividends more closely to market conditions and its own operating performance “materially increases the company’s financial flexibility,” S & P said.

The agency reaffirmed BHP’s long-term and short-term ratings at “A” and “A-” respectively.

BHP’s long-term debt rating had been downgraded from “A+” on February 1, in light of uncertainty around its credit metrics amid the ongoing commodities price slump.

But S & P warned a negative outlook remains, in light of the potential for further weakness in market conditions, and lingering uncertainty about BHP’s financial policy.

Any penalty exceeding $US7.01bn relating to the Brazil dam disaster involving its Samarco joint venture could also hold downside for BHP’s rating, it added.

S & P expects BHP to have free cash flow of $4.2-4.5bn after capital expenditure and dividends in fiscal 2017, and use a “material portion” of this to reduce its leverage.

A slump in the prices of iron ore, copper, and oil have hurt the miner, which reported a half-yearly net loss of $US5.67 billion ($A7.95 billion) last week.

“Our commitment to maintain a solid A credit rating through the cycle provides us with access to low-cost funding, financial strength and flexibility,” Chief Financial Officer Peter Beaven said in a statement.

 

Business Spectator