BHP Billiton A+ rating fragile in FY16, S&P warns

[MELBOURNE] Top global miner BHP Billiton Ltd's investment grade credit rating might come under pressure in the year ahead, Standard & Poor's said on Wednesday after the company reported its weakest profit in a decade but still hiked its dividend.

BHP has long sought to protect its 'A+' rating, even as it reiterated a pledge on Tuesday never to cut its dividend through the highs and lows of commodity price cycles.

But S&P said that with commodity prices likely to remain weak over the next year, the company's debt to earnings balance may temporarily put it out of the range needed to hold on to its rating.

It said the rating could withstand a dip in earnings ratios as long as the agency believed those metrics would recover by the following fiscal year. "Should the weak trading environment persist further, the recovery in credit metrics is unlikely to occur based on BHP Billiton's earnings alone," it said.

The agency said BHP's sharp cut in capital spending and plans to keep cutting costs beyond the US$4.1 billion in operating costs already slashed in the 2015 financial year would help to shore up the rating. "However, we believe BHP Billiton's commitment to a progressive dividend policy reduces the company's financial flexibility in times of deteriorating market conditions," S&P said.

REUTERS