The credit ratings of BHP Billiton and Rio Tinto are set to be cut by ratings agency Standard and Poor’s after the steady plunge in iron ore prices.
S&P has put eight of the world’s largest iron ore producers on CreditWatch negative.
The companies could expect one or even two notch downgrades of their financial and business risk profiles, or they might not get a rating cut at all, S&P said on Tuesday.
Ratings downgrades are a negative reflection on a company’s ability to pay back debt and likelihood of defaulting, therefore hurting the terms it can borrow at.
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Other companies on the list included Fortescue Metals and Brazil’s Vale, with S&P saying it expected the severe supply and demand imbalance in the iron ore market to continue for the next two years.
The warning would also put pressure on BHP and Rio’s dividends.
Both mining giants have committed to not cutting their dividends, so could potentially have to increase debt or forego growth to ensure they can keep their promise to shareholders.
Iron ore prices increased on Monday to $US48.80 a tonne, up 3.2 per cent but are still hovering around decade lows.
