Moody's backs BHP strategy

AS Elliott courts BHP Billiton shareholders in Australia, Moody’s Investors Service has backed the company’s current strategy.
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BHP's Melbourne headquarters

Kristie Batten

Moody’s lifted the ratings outlook for BHP from stable to positive and affirmed its A3 long-term issuer ratings.

The firm said the ratings incorporated the increased uncertainty resulting from Elliott’s recent proposals, and the positive outlook was contingent on BHP continuing with its current strategy.

"The change in outlook to positive reflects our expectation that BHP Billiton will continue to generate material earnings and solid free cashflow in the current environment,” Moody’s vice president and senior credit officer Matthew Moore said.

“This will allow the group to maintain strong margins and credit metrics for its ratings over the next 12-18 months, despite our expectations for lower commodity prices.”

Elliott’s “value unlock plan” for BHP includes the demerging of some of its US petroleum assets, but Moody’s said BHP’s solid position in oil and gas strengthened its diversification relative to global peers.

Elliott also wanted to see increased buy-backs.

But Moody’s said any material change that resulted in higher-than-expected shareholder return and/or leverage would be seen as credit negative.

Debt to EBITDA stood at around 2x at December 31, but Moody’s expects that to improve to 1.5x by June 30 and remain at those levels for 12-24 months.

Representatives from Elliott are reportedly in Australia this week trying to drum up support from institutions for its plan, which also includes abolishing the dual-listed structure and having BHP’s primary listing in the UK.

But according to the West Australian, federal Treasurer Scott Morrison will today tell Elliott that its plan has no chance of success.

“It is unthinkable that any Australian government could allow this original Big Australian to head offshore,” he was quoted as saying.

“BHP Billiton’s Australian shares are held by hundreds of thousands of Australians directly, and by millions more through superannuation funds and other investments.

“The company plays an important role in the Australian economy.”