Moody's may cut Alcoa to junk on Saudi joint venture

NEW YORK Dec 21 (Reuters) - Moody's Investors Service said on Monday it may cut its ratings on Alcoa (AA.N) into junk territory, after the company formed a joint venture with state-run Saudi Arabian Mining Co (Maaden) 1211.SE to build a new aluminum complex.

The firms have yet to raise the financing for the complex, which is planned to be built in Saudi Arabia, the world's top oil exporter, and will target the Middle East from 2013. For details, see [ID:nLDE5BK0I5]

Moody's said it may cut Alcoa's ratings from Baa3, the lowest investment grade. A downgrade into junk territory can significantly increase a company's borrowing costs.

"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," Moody's said in a statement.

Alcoa's equity investment will be in the $900 million range over a four-year period, Moody's said.

The review is also prompted by a slower-than-expected earnings recovery this year in spite of higher-than-expected aluminum prices, Moody's said. (Reporting by Karen Brettell; Editing by Dan Grebler)