BlueScope’s credit rating has been upgraded by Moody’s from Ba3 to Ba2 with a stable outlook. The company’s branded product base and cost cutting initiatives have offset the effects of a weakening macro environment for steel producers
The Moody’s rating upgrade means the rating is now in line with S&P’s BB rating, which was affirmed by them last November with a stable outlook.
According to Moody’s, the upgrade reflects the strengthening in BlueScope's financial profile which has undergone significant improvement in the last 2-3 years.
In a weak commodities environment, BlueScope is continuing to demonstrate resilience as it benefits from its production of branded value-added products, and from low raw material costs, relative to the price of its finished product. These benefits, along with cost cutting initiatives, are offsetting the effects of a difficult global environment for steel producers.
We note BlueScope is a different business to Arrium which recently went into administration. The major contributor to Arrium’s demise was acquiring high cost iron ore mines financed by significant debt during the cyclical peak. BlueScope’s exposure to Arrium is limited to AUD10m which is manageable. In our opinion, the fall of Arrium and associated political fallout, highlights the sensitive nature of the Australian steel industry. Over time, we see this translating to implicit higher levels of government support for BlueScope if it were to face financial difficulty. We have seen evidence of this in the past with the payroll tax relief provided by the NSW government to keep its production facilities in Port Kembla.
We have seen a tightening of yields in BlueScope in recent months reflecting increasing confidence in the credit. The BlueScope US dollar bond maturing in May 2018 is currently offered at an indicative yield to maturity of 5.58%.
Please contact your FIIG representative for further details, available to wholesale investors only.