Iron ore prices have recently declined sharply to levels below our original expectation of US$120 per ton for the benchmark price of Fe 62% CFR (cost and freight). The timing and magnitude of the recovery on pricing is uncertain. As a result, we consider that Fortescue Metals Group is likely to generate lower-than-expected cash flows, which will pressure its liquidity when its expansion project is at the peak capital-expenditure stage. It will also exert financial covenant pressure regarding its debt documents in the near term. We therefore have placed our 'BB-' corporate credit and issue ratings on Fortescue on CreditWatch with negative implications. To resolve the CreditWatch, we will assess the company's actions to address the financial covenant pressure. In
