DBRS Comments on BHP Billiton Demerger of Assets

DBRS today notes that BHP Billiton (BHP Billiton or the Company) has announced its intention to demerge certain of its mining assets, including aluminium, coal, nickel and manganese assets to equity holders through the creation of an independent global metals and mining company (the Spinoff). DBRS views the Spinoff as not having a material impact on the Company’s current credit profile, as the impact on the business and financial risk is viewed as marginally negative. The Spinoff is expected to be completed in the first half of 2015 and remains subject to BHP Billiton board and shareholder approvals, as well as government, taxation, regulatory and other third-party approvals.

The proposed Spinoff, expected to include $17.5 billion of assets (approximately 13% of total assets at June 30, 2014), reflects the Company’s ongoing strategy to simplify its structure. Once completed, BHP Billiton is expected to focus on its large, long-life iron ore, copper, coal, petroleum and potash holdings.

The impact of the proposed Spinoff on the Company’s business risk profile is marginally negative. The remaining business will not be as diversified as it would be before the Spinoff. However, DBRS notes that even after the Spinoff, BHP Billiton will remain the largest mining company in the world, with good diversification, long-life assets and cost effectiveness.

The impact on the financial risk profile of debtholders is viewed as mildly negative. That said, BHP Billiton’s financial ratios for F2014 (just reported) have improved from F2013, with stronger underlying EBIT, higher cash flow and lower net debt. With the proposed Spinoff, DBRS expects a 4% reduction of BHP Billiton EBIT and a 5.7% reduction in cash flow, based upon the Spinoff’s results for F2014. Overall, DBRS does not consider the anticipated changes to have a material impact on the Company’s financial risk profile.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Mining Industry, which can be found on our web site under Methodologies.

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