Moody’s Investors Service says the proposed carbon price won’t weigh heavily on the ratings of Australian corporate issuers.
“At this point, the proposed price – which will most affect carbon-intensive sectors – is manageable within the ratings of corporate issuers,” Moody’s senior vice-president Terry Fanous said in a statement on Wednesday.
He said the specific financial effect would depend on various factors, including the amount of carbon emitted as well as the compensation offered under the proposed scheme and the ability to pass costs on to customers without materially eroding demand.
The carbon price will start on 1 July, 2012, with a three-year fixed-price period, with a starting carbon price at $23 a tonne of CO2 emissions.
Mr Fanous was speaking on the release of a Moody’s report analysing the effects of the proposed carbon price, announced by Prime Minister Julia Gillard on July 10.
The report said the sectors that would be most affected were airlines, steel, coal-based mining, petroleum, chemicals, metals manufacturing, and building products.
The domestic aviation sector was likely to be one of the worst hit, given the possibility of a subsequent increase in domestic jet fuel costs.
It says Qantas Airways – which Moody’s rates as Baa2/negative – may face further challenges as it had limited headroom within its rating.
“Although Qantas has indicated its intention to fully pass through the impact of the carbon price to its customers, its ability to preserve domestic travel activity, particularly leisure travel, at current levels remains uncertain and the tax will add to current operating pressures,” Mr Fanous said.
Other key rated issuers in the affected sectors include Alcoa of Australia, BHP Billiton, Rio Tinto, Boral, Woodside Petroleum Ltd and Incitec Pivot.
The Moody’s report noted the credit implication on individual companies would take time to evolve as the situation would also depend on the indirect cost of carbon being passed down the supply line to issuers, and on the overall impact the proposed scheme would have on consumer and business spending.
Mitigating measures companies implemented to counter the negative effect of the carbon price could also have a mitigating effect on the carbon price.
Rival agency Standard & Poor’s Ratings Services said the carbon price would have no immediate effect on its ratings of Australian energy companies.
It said the long-term effect of the tax on market competitiveness would differ between sectors.
“Companies that are solely focused on generation are likely to face more immediate challenges during the transition period, especially carbon-intensive coal generators and companies with near-term refinancing requirements,” Standard & Poor’s said in a statement on Wednesday.
“We expect that the industry as a whole will be able to substantially pass through additional costs, as evidenced by recent regulatory outcomes that specifically enable companies to do so.”
Standard & Poor’s said the management of these factors would be important for the medium-to-long term competitiveness of these companies, and therefore their rating stability.
