Standard & Poor’s has raised concerns over the energy and mining, lowering its ratings on some of the global giants as the industries adjust to China’s slowdown.
The ratings agency lowered its rating on Royal Dutch Shell and said there was a significant likelihood of downgrades for several Europe-based integrated oil and gas majors in the next weeks.
It also lowered the credit ratings of BHP Billiton Ltd and put Rio Tinto on watch negative, both actions due to challenging market conditions for commodities.
S&P said in a statement that the other energy giants that it was placing on its negative watch list included BP Plc, Eni SpA, Repsol SA, Statoil ASA, Statoil Forsikring AS, Statoil US Holdings Inc, and Total SA.
The agency had earlier lowered its oil price expectation to $40/barrel for this year.
“The magnitude of the oil price drop – 52 per cent on average in 2015 -will not be matched by most oil majors’ cost and capex adjustments over the year. In large part, this delay reflects the contractual nature of field development and offshore drilling and the time required to plan and implement efficiency schemes. In our view, oil majors’ decision to cut investment to facilitate generous shareholder distributions is a negative from a credit perspective, because the reduction in investment will affect future cash-generating assets, S&P said.
“We now believe many major oil and gas companies’ current and prospective core debt coverage metrics are likely to remain below our rating guidelines for two or three years as the industry adjusts to lower prices,” S&P analysts said in the report.
Separately, the agency said it was cutting BHP’s debt a notch lower to A and said a further downgrade would depend on the mining giant’s dividend policy and capital expenditure guideline expected this month.
It put Rio Tinto on negative list, saying it could lower the rating by one notch over the coming weeks if the company does not take supportive measures amid the currently weak commodity prices pressuring its cash flows.
The move comes after S&P made changes in the outlook for the commodities sector following sharp falls in prices of oil iron ore and stell among others.
Last month, Moody’s placed 175 oil, gas and mining companies on review for a downgrade due to a prolonged rout in global commodities prices that it says could remain depressed for some time.