S&P upgrades rating on Rio
Standard & Poor’s had upgraded its long and short-term corporate credit and debt ratings on Rio Tinto Limited (RIO) from BBB/A-3 to BBB+/A-2. The ratings agency said the upgrade was due to the diversified miner providing much improved liquidity and lowering leverage as a result of completing its $15.2 billion rights issue.
S&P said the receipt of net proceeds of about $14.8 billion from the issuance of new shares would have a positive on Rio Tinto’s financial risk profile. Furthermore, S&P said, this transaction avoids the potentially negative aspects of the group’s previous transaction with Chinalco.
S&P said Rio’s intention to apply the net proceeds from the rights issue as repayments of drawings under its Alcan bank loans of about $7 billion due in October 2009 and about $8 billion due in October 2010 would significantly lower the company’s refinancing risks for the next two years.
S&P also estimated adjusted debt would be reduced by approximately one-third.
The ratings agency said Rio should receive about $2.5 billion from disposals, which have been announced but not yet closed, including that of Alcan Packaging Food Americas.
However, S&P does anticipate Rio’s operations to report weak operating results during the rest of the year, while it was too soon to factor in the merger of West Australian iron ore assets with BHP Billiton.
“The stable outlook reflects our opinion that Rio Tinto will achieve sufficient cash flow generation to ensure that a ratio of FFO to adjusted debt of 30%-35% can be achieved in 2010,” S&P said.
“Market prices and a continued focus by management on further debt reduction and maintaining capital spending within previously indicated levels will be key factors.”
At 1420 AEST, Rio Tinto shares were up 80c to $48.40.
