Chalco faces downgrades after Rio JV
August 04th, 2010 | Global TimesInternational credit rating agency Standard &Poor’s said Tuesday it has put Aluminum Corp of China on watch for downgrades after it announced it would invest $1.35 billion in a joint venture with Rio Tinto.
S&P said it has put the company’s long-term corporate credit rating of BBB+ on watch with negative implications, following announcement of the joint venture last week.
China’s largest aluminum maker, also known as Chalco, said it would invest in a Guinea joint venture that partner Rio claims is the world’s largest undeveloped iron ore deposit.
“The rating action reflects our view that the stand-alone rating profile of BBB- could be lowered by more than a notch as a result of the proposed acquisition,” said Standard &Poor’s credit analyst Judy Kwok-Cheung in a statement Tuesday.
This is Chalco’s first venture into the iron ore industry, indicating a change in its business strategy, it said.
BBB- is the lowest level of investment grade of long-term bonds under Standard &Poor’s rating, and any downgrade could put Chalco’s stand-alone rating at non-investment grade or “junk” status.
The slower-than-expected recovery in prices of alumina and aluminum in the first-half of 2010 would continue to pressure the company’s already-aggressive financial risk profile, which adds to the downward pressure on the company’s stand-alone credit profile, the agency added.