S&P assigned a BBB+/A-2 rating to South32 with a stable ratings, a BBB+ long-term rating to the company’s $US1.5 billion senior unsecured, syndicated bank facility, and an A-2 short-term rating to its commercial paper.
The ratings are based on S&P’s view of South32’s satisfactory business risk and modest financial risk profile.
S&P credit analyst May Zhong said South32’s diversified portfolio and good cost position underpinned its risk profile.
“In addition, the company has strong global market positions in manganese ore, silver, lead, and thermal coal in South Africa,” she said.
S&P noted that South32 was smaller than global majors like BHP, Rio Tinto and Anglo American, but it was more diversified than its mid-size peers, though its country risk was higher.
For the December half year, about 37% of revenue was generated from South Africa, with 19% from Brazil, Colombia and Mozambique.
S&P said South32’s credit metrics would initially be well above its expectation for the BBB+ ratings.
"The stable outlook reflects the large buffer in the BBB+ rating as a result of South32's strong initial balance sheet, which should enable the company to withstand further weakening in the prices of its main commodities,” Zhong said.
“To maintain the BBB+ rating, we would expect South32's adjusted funds from operations to debt to be comfortably above 45% and its free operating cashflow to continue to be positive."
Meanwhile, Moody’s assigned South32 a Baa1 issuer rating and a short-term rating of P-2 with a stable outlook.
Moody’ vice president, senior analyst Matthew Moore said the ratings reflected South32’s low costs, low capital expenditure requirements and its expectation that the company would maintain a conservative financial profile over the next 12-24 months.
“We expect that South32 will over time pursue growth opportunities that could involve an increase in financial leverage, but the rating incorporates our expectation that the company will be committed to maintaining its financial profile at a level that would continue to support its Baa1/P-2 ratings,” he said.
