February 13, 2018 / 6:18 AM / 10 months ago

S&P upgrades Rio Tinto, flags well-placed for M&A

MELBOURNE (Reuters) - Standard & Poor’s on Tuesday raised its credit rating on global miner Rio Tinto for the first time since 2011 on the back of strong financial results and said the global miner could easily fund a big acquisition.

S&P said one of the main factors that led to the upgrade to ‘A’ from ‘A-‘ was Rio Tinto’s sharp reduction in debt over the past four years and its “willingness to keep it low”, which would shore it up well against any future downturns.

“Alternatively, it could allow the company to enter into sizable merger and acquisition (M&A) transactions without overstretching its balance sheet,” S&P said.

The upgrade puts Rio Tinto’s long-term credit rating on par with rival BHP Billiton, which was downgraded to ‘A’ in 2016 when iron ore, coal and metals prices stumbled. Rio Tinto’s rating was cut to ‘A-‘ in 2011.

The agency said it was unlikely to cut Rio Tinto’s rating in the next two years, adding it would not come under pressure unless iron ore prices fell to $40 a tonne or below for an extended period.

It sees Rio Tinto maintaining net debt around $7 billion (£5.05 billion) to $8 billion over the next two years, based on strong cash flow assuming its biggest earner, iron ore, averages $55 a tonne for the rest of 2018 and $50 in 2019.

S&P’s iron ore assumptions are more bearish than others in the market. A Reuters poll in January found analysts expect the benchmark 62 percent grade iron ore for delivery to China would average $62 a tonne in 2018.

Reporting by Sonali Paul, Editing by Richard Pullin and Sherry Jacob-Phillips

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