Anglo American credit rating cut to junk by Fitch

Anglo American suffered the second downgrade to its credit rating this week, as Fitch Ratings cut it to junk.

The ratings agency downgraded Anglo to BB+ from BBB- just two days after Moody’s Investors Service cut the company’s credit rating to junk status.

The downgrade by Fitch followed the release of additional information on the group's operational restructuring, which includes the sale of around 25 assets.

It said that if completed, the restructuring announced on Tuesday will result in Anglo becoming a materially smaller mining company focused on diamonds, copper and platinum.

“We believe the reduced scale of the group together with the current weak credit metrics and uncertainty related to the timing and execution of the restructuring plan/asset sales are more commensurate with a 'BB' category rating,” Fitch said.

The ratings agency has a negative outlook on Anglo, which it said primarily reflects the high level of uncertainty regarding the ultimate success of the group's restructuring plan.

“In part this comes from the large number of mining assets currently available for purchase, creating a buyers' market. With several of AA's available assets being marginally profitable or lossmaking, this raises the question of whether they will attract a purchase multiple that is acceptable to AA's management.”

Fitch said a failure to sell assets as currently envisaged would mean the current elevated credit metrics would be sustained for an extended period and in the absence of other factors would result in negative rating action.

On Tuesday, the miner posted a pre-tax loss of $5.5bn after $3.8bn of writedowns since the half year, as it unveiled its promised “radical” overhaul to combat sinking commodity prices.

The company announced a new focus on diamonds, platinum and copper, with the total target for the disposals increased to $5-6bn by the end of 2016.