Ratings agency Moody’s has upgraded its outlook on BHP Billion’s credit rating to “positive” from “stable”, as it expects the mining giant to continue generating strong earnings and free cash flow despite a likely decline in commodity prices.
Moody’s has maintained the “A3” issuer rating on the miner’s balance sheet.
The affirmation reflects the strength of BHP’s metals and mining portfolio and its substantial product and geographic diversity, Moody’s said.
It highlighted the company’s solid position in oil and gas, which it said strengthens BHP’s diversification, relative to other global miners.
The resources giant has recently been embroiled in a tussle with activist hedge fund Elliott Advisors, which wants BHP to spin off its US petroleum business and return more cash to shareholders through buybacks.
BHP has dismissed the restructuring proposal, saying the plan has major flaws and would not benefit shareholders.
Moody’s has added its weight to the BHP board’s status-quo approach.
“The positive outlook is predicated on the group continuing with its current operating strategy and financial policies, and that its operating footprint will not change materially as a result of the Elliot proposals,” the ratings agency said in a statement.
“Moody’s does not expect any changes to BHP Billiton’s current capital allocation framework, but any material change that resulted in higher-than-expected shareholder returns and/or leverage would be seen as credit negative.”
It expects higher commodity prices and improved costs will allow the miner to continue generating earnings margins of around 50 per cent over the next 18 to 24 months.
BHP has improved its buffer against lower commodity prices through material cost reductions, recent debt repayments and bond repurchases, and changes in its dividend policy, Moody’s said.
BHP made a profit of $US3.2 billion in the first half of the current financial year.
Its shares were down 52 cents, or 2.2 per cent at $23.24 at 1520 AEST, in a weaker market.