Rio hit with downgrade watch

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Rio Tinto has been placed on downgrade watch today by S&P:

Global diversified mining group Rio Tinto’s leverage has increased beyond our previous expectations.

  • We see a risk that Rio Tinto’s debt may rise further in 2013-2014, unless the company makes large disposals or iron ore prices stay well above $120/tonne CFR China.
  • We are revising our outlook on Rio Tinto to negative from stable and affirming the ‘A-/A-2’ corporate credit ratings.
  • The negative outlook reflects the risk of a downgrade in the next 12 to 18 months, if debt increases further and adjusted FFO to debt does not improve to 40% from a relatively low 30% in 2012.

One could almost substitute Australia for Rio in this analysis.

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RioNegOutlook_Feb2013

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.