18/12/2008 - 11:34

Moody's downgrades Rio Tinto rating

18/12/2008 - 11:34

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The continued high risk of Rio Tinto's debt following its Alcan acquisition has prompted international ratings agency Moody's to downgrade the miner's rating.

The continued high risk of Rio Tinto's debt following its Alcan acquisition has prompted international ratings agency Moody's to downgrade the miner's rating.

The mining giant's senior unsecured ratings of entities within the group, including Rio Tinto Alcan, have been revised from A3 to Baa1.

"The senior unsecured rating outlook is negative. Moody's affirmed the Prime-2 short-term ratings and their stable outlook," Moody said.

"Following the rating action, Moody's will withdraw Rio Tinto Alcan's Baa1 senior unsecured ratings.

"The withdrawal of Alcan's ratings results from the lack of stand alone financial information and the inability therefore to accurately assess the financial standing of Alcan or its cash generation ability relative to its obligations."

The ratings agency said the downgrade captures the heightened degree of financial risk arising from the significant level of debt from the Alcan acquisition and the limited progress in reducing debt through the planned $US10 billion asset sale in 2008.

Moody's said it also took into account the impact on earnings and cash flow on the back of falling metal prices and demand, and the anticipated iron ore price reductions for 2009.

"A key factor in the company's rating will be its ability to execute on its divestiture program and reduce debt over the next twelve months, including the $8.9 billion outstanding at September 30, 2008 which has a maturity in October 2009, as well as addressing its $10 billion October 2010 debt maturity," the agency said.

Moody's added the new rating also considers the recent actions Rio announced to address the economic volatility.

Earlier this month, Rio said it plans to cut 14,000 jobs, cut its 2009 capital spending by more than half to $US4 billion and increase asset sales in order to reduce its $US38.9 billion debt by a further $US10 billion at the end of next year.

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