Rio Credit Rating May Be Downgraded on Debt, S&P Says

By Rebecca Keenan

Nov. 28 (Bloomberg) -- Rio Tinto Group, the world’s third- largest mining company, may have its credit rating downgraded because of its high level of debt and declining commodity prices, Standard & Poor’s Ratings Services said.

“Rio Tinto will be challenged to improve and maintain its credit metrics to be in line with the ‘BBB+’ rating category,” the ratings company said in an e-mailed statement. It revised its credit watch status to “negative” from “developing.”

Rio has failed to sell $10 billion of assets to reduce its debt and earnings may fall because of a slump in commodity prices. BHP Billiton Ltd. scrapped its $66 billion takeover offer for Rio this week because the acquisition would have elevated its debt to unacceptable levels, BHP said.

“Although it is likely that Rio Tinto will undertake some corrective measures to limit spending, such as reducing capital expenditures and working capital, in our view this will not be sufficient to fully offset the negative effects from higher debt,” Standard & Poor’s said. The company has $42.1 billion of debt.

Rio rose 8.8 percent to A$46.60 at the 4:10 p.m. Sydney time close on the Australian stock exchange. The stock has dropped 27 percent since BHP abandoned its bid.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net