BHP’s credit rating reaffirmed

Changing its tack to its dividend policy has seen BHP avoid another credit rating downgrade.

Standard & Poor’s has reaffirmed its A rating for the miner following the release of its latest results, and changes to its structure and dividend policy.

BHP previously saw its credit rating slashed from A+ to A, with Standard & Poor’s noting, “At this stage, we have no certainty on the company’s response to the challenging market environment.”

“We aim to resolve the CreditWatch after BHP releases its financial results, when we will know more about the timing and magnitude of its financial actions.”

Last month the miner announced it would shed its progressive dividend policy, moving to adopt a 50 per cent dividend ratio policy that would rephrase distributions to shareholders, linking it more closely to the performance of the business rather than paying steady or increasing dividends.

“The changes to the dividend policy announced today reflect the Board’s assessment of the outlook for commodities and the increased financial flexibility this demands,” BHP chairman Jac Nasser said at the time.

“While the continued development of emerging economies will underpin longer-term demand growth for commodities, we now believe the period of weaker prices and higher volatility will be prolonged. The adoption of a dividend payout ratio will further support BHP Billiton’s financial strength, while providing flexibility at the bottom of the cycle and ensuring discipline at the top.”

BHP CEO Andrew Mackenzie added,” Our new dividend policy and transparent capital allocation framework are part of a broader strategy to help BHP manage volatility”.

Standard & Poor’s has responded to this action, reaffirming its rating and taking the miner’s long-term credit crating off CreditWatch.

However it is not all positive news, with the outlook remaining negative due to continuing weak market conditions and uncertainty on how its financial policy may affect recovery in the next year.

Concern over Samarco, and the liabilities tied to the environmental incident, also loomed over the miner’s future.

S&P went on to state the miner is expected to achieve free cash flows of between US$4.2 billion and US$4.5 billion next year, a large portion of which will be used to lower its leverage, increasing its funds from operations to debt ratio to 40 per cent by the end of next year, up from around 32 per cent this year.


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