S&P warns BHP oil and gas exit threatens its credit rating

BHP Group PLC updates

S&P International has warned BHP that the miner’s choice to sell its oil and fuel enterprise may threaten its credit standing, since it can depart the group much more reliant on iron ore.

The score company mentioned it may decrease its score on BHP by as much as two notches within the coming months because the lack of the petroleum unit would lead to a “much less diversified portfolio”.

The warning follows BHP’s announcement final week that it’s going to sell the business to Australia’s Woodside Petroleum in alternate for shares that shall be distributed to traders. BHP, which additionally unveiled plans to shift its major inventory market itemizing to Australia, mentioned it will put the miner in a greater place to concentrate on commodities that will profit from a world transition away from fossil fuels in the direction of clear power.

However S&P mentioned BHP’s growth into potash, a fertiliser, in addition to elevated concentrate on nickel and copper “are more likely to have a modest influence within the brief to medium time period”, including that the group’s portfolio could change into “barely much less diversified” than a few of its friends reminiscent of Rio Tinto, Glencore and Anglo American.

S&P mentioned it had put BHP’s funding grade A and A-1 short-term score “on CreditWatch with destructive implications”.

S&P’s view contrasts with that of rival Moody’s, which mentioned final week that the sale of the oil and fuel belongings could be “credit score optimistic” for BHP from an environmental, social and governance (ESG) perspective.

The deal “marks additional materials progress in BHP’s push to decrease carbon emissions and will increase the portfolio combine in the direction of commodities that may possible profit from the worldwide push to decarbonise,” Moody’s mentioned.

BHP has been steadily promoting its undesirable belongings over the previous few years, disposing of its lossmaking US shale oil enterprise in 2018 to BP and demerging its aluminium, manganese and different belongings into a brand new firm, referred to as South32, in 2014.

The oil and fuel enterprise contributed about 6 per cent to BHP’s earnings earlier than curiosity, tax, depreciation and amortisation at $2.2bn within the twelve months to June. Iron ore generated $26.3bn of BHP’s earnings, whereas copper accounted for $8.5bn and nickel $300m, S&P mentioned.

“We beforehand noticed BHP’s diversification into the oil and fuel sector as positively differentiating BHP from a few of its friends, given our view that the petroleum belongings are very aggressive,” S&P mentioned.

The merger of BHP’s oil and fuel enterprise with Woodside Petroleum is predicted to be accomplished by the second quarter.

Shares in BHP rose by 0.4 per cent on Tuesday to £22.16p in morning buying and selling in London, amid a broad-based rally within the commodities sector.

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