The pressure is mounting on BHP Billiton (BHP) to cut or drop its dividend.
The company was warned this morning that it could suffer another ratings downgrade if it does not drop its so-called progressive dividend policy.
That policy sees the dividend either increased or maintained, but early today, the Standard & Poor’s ratings group issued the warning in cutting BHP’s credit rating to ‘A’ from ‘A plus”.
The warning will add to pressure on the world’s biggest resources company to cut its payment to shareholders, which last year cost more $US 6 billion. S&P said in a statement this morning:
“If the company remains committed to its progressive dividend policy, while its cash flows are pressured by lower commodity prices, we could lower the ratings by another notch. At this stage, we have no certainty on the company’s response to the challenging market environment.”
BHP releases its interim results on February 23 and many analysts think the company will cut its dividend and slash spending levels in order to bolster its financial position.
A number of the world’s largest miners, including Glencore, Anglo American, Freeport McMoRan and Vale have either suspended dividends or plan to in 2016 to improve their financial position.
BHP 1Y – S&P warns BHP over dividend
S&P said it had downgraded BHP and placed it on review for another downgrade because of falling commodities prices and the increasingly uncertain outlook for demand as China’s resource hungry economy slows.
“Metal prices have come under pressure because of fears of lower demand from China, and excess supply remains an issue,” S&P said in its statement.
“Moreover, particularly relevant for BHP Billiton, the oversupply of crude oil in the market results in very weak oil and Henry Hub gas prices, which we now believe will last over the foreseeable future, putting further pressure on its balance sheet."
“Under our revised assumptions, taking into account the company’s financial policy and public guidance, we forecast a material drop in BHP Billiton’s results in the coming 18 months, with key credit metrics well below the levels we consider to be consistent with an ‘A+’ rating," S&P also said.
BHP shares fell 0.6% on the ASX yesterday to end the day on $15.25.
