Fortescue Metals Group's $US800 million senior unsecured notes issue has been rated as speculative by key ratings agencies.
Fortescue Metals Group's $US800 million senior unsecured notes issue has been rated as speculative by key ratings agencies.
Standard and Poor's has assigned a 'B' rating to FMG's proposal.
"The 'B' corporate credit rating on Fortescue reflects our view of Fortescue as a relatively long-life, low-cost iron ore producer in the Pilbara region of Western Australia," the agency said.
"The positive outlook on the rating reflects our expectation that the current level of iron ore prices should improve the group's financial metrics and liquidity to levels that may support a 'B+' rating.
"However, any uplift in the rating would only occur if, in our view, the group: adequately mitigates the risks regarding costing, execution, and funding of the planned expansion program; can meet development and production ramp-up timeliness; maintains and builds on current liquidity; and demonstrates a commitment to financial policies supportive of a higher rating."
Standard and Poor's said the rating could be revised to stable if Fortescue's financial risk profile, financial metrics and liquidity levels were lower than forecast.
Fellow rating agency, Moody's Investors Service has assigned a provisional B1 rating to the unsecured notes, in line with other unsecured debt from Fortescue.
A B1 rating indicates an investment that is highly speculative and below investment grade.
A third agency, Fitch, said the notes will have an expected rating of BB+, which while higher than Moody's B1 ranking still indicates the stock is speculative and not investment grade.
The bond issue will be used to fund Fortescue's expansion activities and for other general purposes.
Moody's said it recognised the strengthening company profile of Fortescue and the fundamentals of the iron ore industry.
"The rating is constrained by the relatively short operating history, and the uncertainty associated with Fortescue's plans to substantially expand its production capacity over the next few years," Moody's said.
It said Fortescue wanted to triple is production capacity, which may require a significant amount of debt.
"To the extent that Fortescue funds future expansion with a large proportion of secured debt the rating on the notes could be downgraded reflecting the legal subordination to secured creditors," Moody's said.
Fortescue shares closed down five cents at $6.51.
