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S&P raises Alumina's ratings to BBB- on strong earnings from Alcoa World JV

S&P Global Ratings raised the long-term issuer credit rating and associated issue rating on Alumina Ltd. and its senior unsecured debt to BBB- from BB+, with a stable outlook.

The ratings change reflects the improved earnings and cash flows of the company's 40%-owned joint venture, Alcoa World Alumina and Chemicals, or AWAC, and the stronger credit quality of its operating company, Alcoa Corp., which owns 60% of the joint venture.

The rating agency expects AWAC's earnings and cash flows to improve during this year on the back of strong alumina prices and the solid operating performance of its assets.

Additionally, Alumina and AWAC are expected to maintain lower levels of debt, which, according to S&P is a "key to their resilience amid volatile commodity prices."

Alumina prices are estimated to average around US$350 per tonne for this year and 2019, however, Alumina can still operate within the credit metrics for a BBB- rating even if alumina prices fall to US$270 per tonne, S&P said May 16.

"Alumina's business risk profile reflects our view that AWAC's good business position as one of the world's largest alumina producers provides AWAC with the size and scope to adjust its operations to respond to market conditions," S&P wrote.

The stable outlook reflects the rating agency's expectation that AWAC's strong dividend distribution in the future will be supported by a healthy alumina market and a sound operating performance, while Alumina will maintain a low leverage level.

Alumina hiked its final dividend for 2017 by 200% year over year to 9.3 U.S. cents apiece, for a 125% increase in total dividend to 13.5 cents, after swinging to a net profit of US$339.8 million during that year, from a year-ago net loss of US$30.2 million.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.