Ratings agency Moody's has intensified the pressure on Fortescue Metals Group, warning late last night it was reviewing the debt- laden miner's financial ratings for a possible downgrade.
The shock move is likely to trigger further falls in FMG's share price when the market opens today.
It comes after FMG's founder Andrew Forrest yesterday defended the company's debt position despite a sharp fall in iron ore prices, saying FMG was prepared to weather any storm.
After this week spending about $38.5 million buying another 10 million shares - bringing his stake to 32 per cent - Mr Forrest said Fortescue had "massive levers" it could pull, such as smoothing capital expenditure and pulling back pre-stripping and watering plans before it hit the breaking point analysts were predicting.
The iron ore price hit $90 a tonne yesterday, a level at which analysts warn FMG could struggle to meet interest payments on its $US7.6 billion debt. That prompted Moody's to announce it had placed FMG's Ba3 corporate rating under review for a possible downgrade.
"Fortescue is investing heavily in its significant capacity expansion project (to 155 million tonnes of iron ore a year), and the depressed operating cash flow . . . is raising material challenges for Fortescue," Moody's Matthew Moore said. He said FMG may be forced to raise more funds to offset a cash squeeze or delay its expansion or risk breaching debt covenants.
Speaking outside the Africa Down Under conference, Mr Forrest said he was comfortable with the company's debt position and believed the iron price would bounce back. "It (the iron ore price) is playing out the global financial crisis all over again," he said.
"It was overreacting at $180/t, (and) if it were to wander down on the other side it's an overreach, it's just not sustainable.
"If you compare (our) debt to cash flow, we're in very, very good shape with very large pools of liquidity.
"I'm obviously completely unconcerned (about the debt position)." Mr Forrest's optimism was echoed by chief executive Nev Power, who told the Sydney Mining Club he believed iron ore prices would return to $US120/t soon.
Mr Power said if cash flow from iron ore sales slowed, Fortescue would turn to non-debt options to bring in extra funds.
"We can take on more debt, but we don't think it's prudent to do much more of that at the moment."
Reports circulating yesterday suggested lenders involved in securing Fortescue's latest $1.5 billion debt tranche were becoming nervous, forcing the company to approach up to 20 international banks to secure it. A downgrade would make it more difficult to borrow.
Fortescue's share price fell again yesterday, dropping 6¢ to $3.59.I'm obviously completely unconcerned (about the debt)." Andrew Forrest
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