Moody’s Review of BHP’s Credit Rating Piles On Pressure

23 Dec 2015 | Author: | No comments yet »

BHP Billiton Put on Review by Moody’s for Potential Downgrade.

The commodities rout has sent mining shares falling sharply, triggering moves by many to shore up cash through asset sales and dividend cuts. London – Britain’s top equity index steadied on Friday, outperforming the broader European stock market and propped up by commodities shares, which advanced as prices of major industrial metals and oil rose.FTSE indices tiptoed towards a lower close as traders responded to a lower Wall St overnight, sparked by a widening US current-account deficit and weaker-than-forecast manufacturing data.

BHP, however, enjoys one of the industry’s strongest balance sheets, and its low-cost operations have helped buoy earnings, compared with many peers. The benchmark remained on track to rise 2.3% for the week, which would be its best weekly gain in nearly a month. “The review will focus on the potentially very 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” said Matthew Moore, senior credit officer at Moody’s, in a Friday statement. “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”. BHP shares were up 6 pence, or 0.8%, at 705.7 pence a share in late-morning London trading, while the FTSE-350 mining index was flat, and shares of fellow Anglo-Australian peer Rio Tinto PLC were down 0.4% in London. Moody’s lowered its crude oil price assumption to $43 and $48 a barrel in 2016 and 2017, respectively, and forecast iron ore to average $40 and $45 a ton for those years.

The UK mining index rose 1.6 percent, the top sectoral gainer, after metals prices gained following a fall in the US currency, making dollar-priced metals cheaper for holders of other currencies. Oil and iron ore are BHP’s biggest earnings drivers, with each dollar movement in those two commodities moving the company’s bottom line by about $200 million this financial year, according to the company. Among leisure-related stocks it was Carnival (CCL) leading with a fall of 2.41% to 3468.5p, with TUI (TUI) slipping 1.06% to 1209p and easyJet (EZJ) easing 0.99% to 1698p. UBS analysts said that the mining sector’s outlook remained challenging, with valuations not compelling and free cashflow remaining negative or struggling to cover dividends. In Tokyo, the Nikkei Stock Average NIK, -1.90% jumped then swung nearly 2% lower after the Bank of Japan unexpectedly announced additional measures to its three-year old monetary easing program.

Moody’s expects the miner’s key credit ratio of adjusted debt to earnings before interest, taxes, depreciation and amortization, or Ebitda, to come in at 2.0 to 2.5 over the next 18 months, given BHP’s current capital expenditure and dividend plans. Japanese stocks fell as the dollar was taken on a wild ride against the Japanese yen USDJPY, -0.87% after the BOJ’s moves, eventually pulling the greenback down more than 1% against its rival to ¥121.26. Chairman Jacques Nasser didn’t rule out a dividend cut at an investor meeting in November, saying “the one thing we never risk is the strength of the balance sheet through the cycle.” Further pressuring BHP is a mining disaster at a joint venture it owns with Vale SA VALE -6.38 % .

Last month, a dam burst at an iron-ore mine operated by Samarco Minerao SA, unleashing an avalanche of mud that killed at least 15 people, destroyed villages downstream, and polluted hundreds of miles of waterways in the Rio Doce basin. The Brazilian government has called on Samarco to set up a $20-billion Brazilian reais ($5.2 billion) fund to deal with the flood’s social and environmental damage. BG Group (BG.), up 0.11% to 946.8p, said the Lake Charles LNG export project has received approval from the US Federal Energy Regulatory Commission to construct and operate a natural gas liquefaction and export facility.

Electric Word (ELE), up 33.33% to 4p, has conditionally agreed to sell its indirect 70% shareholding in iGaming Business Ltd to Clarion Events Ltd, a global events business with a portfolio of event and media businesses across a range of vertical markets. Hardide (HDD), up 27.66% to 1.5p, has won a major order worth more than GBP0.3m to supply crucial coated components for a new type of airport high-speed X-ray baggage screening machine.

All Leisure Group (ALLG), down 17.39% to 4.75p, had better late bookings in Q4 and the group now expects to have delivered broadly neutral FY pretax profit. Vodafone Group Plc (NASDAQ:VOD) has decreasing about -2.26% since the beginning of the year and has pulled back -15.87% from the recent high of $37.80. Barker also presents important information from latest sell-side research in some of his articles, which is otherwise not available to ordinary investors.

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