BHP Billiton may need to raise up to $10bn to keep credit rating, says Liberum

“Slashing capital expenditure and even cutting its dividend to zero are not sufficient for BHP to realistically retain a 'solid A' credit rating, if spot commodity prices and currencies persist,” Knights argued.

“Given the company continues to be married to the idea of a ‘solid A’ rating throughout the cycle, a rights issue looks likely.”

He added that the threat of a capital call is likely to weigh on the shares, but its resolution, along with self-help measures of tighter capital spend and a dividend cut, would close the value gap to Rio Tinto.

“Further capex cuts and more capital would put BHP in a strong position versus its peer group from both a valuation and balance sheet perspective,” Knights said.

In December, Moody’s placed BHP Billiton’s credit rating under review for a potential downgrade, pointing to the steep decline and persistent weakness in commodity prices.

Meanwhile, last week, BHP Billiton said it expects to book a $7.2bn impairment charge on the value of its onshore US assets in its half-year results on the back of sliding oil prices.

In addition, it said it would cut the number of operated rigs in its onshore US business to five from seven in the March quarter.

“Oil and gas markets have been significantly weaker than the industry expected. We responded quickly by dramatically cutting our operating and capital costs, and reducing the number of operated rigs in the onshore US business from 26 a year ago to five by the end of the current quarter," the company said.

Earlier this week, the miner announced that it will cut iron ore production by 10m tonnes due to the dam disaster at Brazil's Samarco.

Liberum rates BHP at ‘sell’ with a 550p price target.