Ratings agency Fitch has warned that BHP Billiton’s plan to divest shale gas assets together with any increased level of shareholder payouts could impact the resources giant’s credit profile.
Fitch reaffirmed its ‘A+’ rating on BHP on Friday following stronger-than-expected results and cash flow generation in FY17, but kept its outlook as ‘negative’.
“We view the recent announcement regarding the classification of BHP’s US shale assets as non-core as being credit-negative for the company’s longer-term business profile, as the sale of these assets would take away a material portion of the expected future growth in BHP’s petroleum division,” the ratings agency said on Friday.
BHP in August declared its troubled US shale assets as “non-core” and said it was actively pursuing options to exit them, handing a partial victory to activist shareholders such as hedge fund Elliott Advisors who have been agitating for improved returns.
Elliott, which has called for the demerger of the petroleum business and share buybacks as a means of unlocking shareholder value, holds a five per cent interest in BHP.
Fitch said its negative outlook in part reflected concerns that the presence of an activist shareholder on the company’s register could result in an increased level of shareholder-friendly measures such as share buybacks or special dividends.
“Such a move could introduce a higher level of volatility to BHP’s credit profile and lead us to reconsider the ratings benefit we have historically given the company for its stable financial policies and credit profile.”
BHP trebled it final dividend for FY17 after generating free cash flow of $US12.6 billion in 2016/17 – its second highest on record – boosted by sharply higher earnings in iron ore, petroleum, coal and copper.
Fitch’s warning comes on the same day that BHP’s rival Rio Tinto announced it will buyback another $US2.5 billion worth of shares, as it returns proceeds from the recent sale of its non-core NSW coal operations.