S&P Revises BHP Billiton Outlook on Commodity Slump

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 [e-mail]

Access Investor Kit for Fortescue Metals Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000FMG4

Access Investor Kit for Rio Tinto Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000RIO1

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0000566504

Access Investor Kit for BHP Billiton Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US05545E2090

Access Investor Kit for Fortescue Metals Group Ltd.

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US34959A2069