Standard & Poor’s Ratings Services (S&P) upgraded its rating on Rio Tinto’s (RTP) long-term and short-term corporate credit and debt from BBB/A-3 to BBB+/A-2. The rating agency said that the upgraded rating reflects net proceeds of approximately $14.8 billion that the company raised through its recently completed rights issue.
The company has $8.9 billion of debt maturing in 2009 and $9.1 billion maturing next year. The company’s debt increased significantly after it acquired Alcan Inc. in 2007.
Rio is divesting its non-core assets to reduce its hefty debt levels. The company raised $3 billion in 2008 and another $3.7 billion year-to-date through its ongoing divestment program.
In addition, the company raised additional capital for debt reduction through issuance of new shares. The credit rating agency stated that its new rating reflects the positive impact of the rights issue on the company’s financial risk profile.
Though this helps the company in meeting its immediate obligations, we believe it is important for the company to divest its remaining non-core assets at attractive prices in order to meet its future commitments. The company said that the divestment program is on course for other assets identified for sale.
We maintain a Hold recommendation on RTP.
Read the full analyst report on “RTP”
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