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Rio Tinto rating cut one notch to BBB

Friday 19th December 2008

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Rio Tinto's credit rating was lowered by one notch to BBB on expectation the downturn in commodities in a shrinking global economy will hurt profits and weaken its balance sheet.

"The downgrade reflects our expectation that profits, cash flows, and leverage will be too weak for the previous 'BBB+' rating, due to a sharp downturn in global economic conditions and the commodity cycle," Standard & Poor's credit analyst Alex Herbert said in a statement. "This is coupled with a legacy of high debt and sizeable debt maturities in both 2009 and 2010, which have also strained liquidity."

Moody's lowered Rio's rating to Baa1 from A3.

Shares of the world's third-largest mining company fell 3.8% to $38.50 and have tumbled 45% in the past month as larger rival BHP abandoned a takeover. Rio, which owns 30% of the Escondida copper mine and is among the biggest iron ore producers, is cutting 14,000 jobs as it copes with the slump in demand.

Rio's short-term rating was lowered to A-3 from A-2. The company has "substantial adjusted debt of about $47 billion, which will likely prevent an improvement in leverage and creates heightened refinancing risks," said S&P, which has a negative outlook on the company.

"There is a high risk of a further downgrade if the group is unable to mitigate refinancing risks relating to the $8.9 billion debt maturity in October 2009," S&P said. "We believe that the company will be able to meet this maturity, supported by efforts to conserve cash-as well as pursuing meaningful disposals-and refinancing options," Herbert said.

By Jonathan Underhill

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