SYDNEY--Standard & Poor's Ratings Services revised its
outlook on BHP Billiton Ltd. to negative from stable, reflecting
concern that softer commodity prices and the miner's dividend
commitments would likely weaken its balance sheet.
Although the Anglo-Australian miner can further reduce costs and
capital spending to conserve cash, lower prices for two of its key
commodities, iron ore and oil, increase the likelihood of BHP's
financial position worsening in 2016, Standard & Poor's said in
a statement.
"Despite being the most diversified miner globally, BHP Billiton
is particularly exposed to iron-ore prices and to some extent, oil
prices--both of which have fallen rapidly since late 2014," it
said. The value of iron ore, which has accounted for roughly half
of group profits in recent years, is down 50% compared to a year
ago, as supplies from new and expanded mines, including BHP's own
operations, have overwhelmed demand.
The miner's promise of progressive cash returns to shareholders
was also worrisome for S&P analysts. BHP has pledged to
maintain or increase its dividend each half year, despite falling
commodity prices, in a bid to satisfy yield-hungry investors.
"BHP Billiton's commitment to a progressive dividend policy
reduces the company's financial flexibility in times of
deteriorating market conditions," the ratings agency said.
Still, Standard & Poor's affirmed BHP's ratings, including
its A+ long-term corporate credit rating, and said it could revise
the outlook back to stable if BHP's financial performance is better
than expected.
The agency put a group of iron-ore miners, including BHP and its
Australian rivals Rio Tinto PLC and Fortescue Metals Group Ltd., on
negative credit watch last month citing a deteriorating iron-ore
price outlook.
On Monday, S&P took Rio Tinto off credit watch, affirming
its A- long-term credit rating with a stable outlook. It said Rio's
current financial position, low costs and relatively low capital
expenditure would mitigate pressure from weaker iron-ore
prices.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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