Heat Treat Industry News

December 23, 2009

Alcoa may be cut to junk by Moody’s on Ma’aden deal

Alcoa Inc, the largest US aluminum producer, may have its credit rating lowered to junk status by Moody’s Investors Service on concern about a new joint venture with the Saudi Arabian Mining Co amid the industry’s slow recovery.

Alcoa and Saudi Arabia’s state-owned metals producer, known as Ma’aden, signed a contract on Monday to build a SR40.5 billion (US$10.8 billion) aluminum industrial complex in the country. Alcoa will control 40% of the project, which will supply aluminium to Saudi Arabia and global markets.

Moody’s today placed Alcoa’s Baa3 senior unsecured ratings and its short-term Prime-3 rating under review for a possible downgrade. Moody's rating for Alcoa's senior unsecured debt is already at the lowest investment grade.

“Given our expectation for only slow recovery in the aluminum industry and in Alcoa’s earnings, the potential for further delay in balance sheet improvement and debt reduction as a result of this investment is a consideration prompting the review,” the ratings company wrote in a note today.

Moody’s plans to review the strategic benefit of the joint venture, the timing of Alcoa’s cash outflows, the level of returns and the outlook for the aluminum industry, which Moody’s says has excess capacity and will likely see a price correction.

Standard & Poor’s Ratings Services today reiterated its BBB-rating on Alcoa, which also is its lowest for investment-grade debt.

Publishing Date 22 Dec 2009 11:18am GMT Author Mining Journal

SOURCE: Bloomberg - Dec 21, 2009

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