BHP Deal Won't Hit Rating; Deleveraging Plan to Continue

The following statement was released by the rating agency (Fitch):

BHP Billiton's decision to spin off its non-core operations is unlikely to affect the group's 'A+' rating and Stable Outlook, Fitch Ratings says. BHPB is relatively highly leveraged for its rating, but we do not expect the spin-off to have a significant impact on key metrics and believe the group will be able to continue steadily reducing leverage. BHPB's decision to transfer assets including manganese, precious metals, base metals and energy coal to a new independent company will simplify its portfolio, allowing it to focus on four main pillars: petroleum, iron ore, copper and metallurgical coal. The core remaining assets contributed 97% of underlying EBITDA in FY14 and we therefore do not believe the spin-off will significantly weaken the group's scale and diversification, which is a key rating strength. BHPB will remain the strongest among Fitch-rated diversified mining companies after the demerger, both operationally and financially. Its involvement in the petroleum business is unique among its peers. The structure chosen, as we understand it at present, means debt holders will not benefit from the cash inflows and potential subsequent debt reductions that a divestment of the assets could have provided. But we expect BHPB to continue to pursue balance-sheet optimisation, which will enable it to achieve comfortable leverage for its rating category. FY14 results showed positive leverage trends, with capex in line with target at USD16bn and net debt only slightly above the group's USD25bn target at USD25.6bn. The preliminary FY14 results indicate that FFO-adjusted gross leverage is likely to be marginally above our 1.5x guidance threshold for the 'A+' rating. However, this is down significantly from the peak of 2.05x at FYE13. We believe BHPB's plan for further capex reduction to USD14bn in FY15 and USD9bn in the medium term, if the demerger is approved, will contribute to further deleveraging and that the group will eventually reduce leverage to FY12 levels of around 1.35x. Contact: Ilya Makarov Director Corporates +7 495 956 6904 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Sara Salomoni Analyst Corporates +44 20 3530 1641 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: [email protected]. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.