Massive Black Horse Chromite Discovery

Black Horse deposit has an Inferred Resource Now 85.9 Million Tonnes @ 34.5%

Free
Message: Glencore

Glencore Loan Wins Banks on Future Business: Corporate Finance

By Stephen MorrisJune 19, 2013

Ivan Glasenberg, chief executive officer of Glencore Xstrata Plc, and Chief Financial Officer Steven Kalmin negotiated the loan, the largest corporate credit line for a European company in more than six years, Bloomberg data show. Photographer: Andrey Rudakov/Bloomberg

Glencore Xstrata Plc (GLEN) raised the biggest loan on record for a commodity trader at interest rates below those offered to competitors as the 80 banks backing the deal count on winning future business from the company.

The world’s biggest publicly-traded commodity supplier signed $17.3 billion of revolving credit facilities last week, paying a margin of 90 basis points more than benchmark rates for a three-year portion, according to data compiled by Bloomberg. That’s 47.5 basis points less than Vitol Group, the largest independent oil trader, pays on its main $5 billion credit line, and 100 basis points less than Trafigura Beheer BV’s $2.9 billion deal, the data show.

“Banks have fallen over themselves to provide credit as they see Glencore Xstrata as an active and attractive counterparty, which has a big trading book,” said Jeff Largey, head of European metals and mining equity research at Macquarie Group Ltd. (MQG) in London. “Glencore Xstrata is seen as a growth company, it’s been acquisitive in the past and it will remain so. If you’re seen as extending credit to them, that potentially opens up other business opportunities.”

Trade Financing

Glencore, which generated revenue of $214 billion last year trading commodities including coal, oil and corn, awards relationship banks ancillary business in trade financing, currency hedging, and acquisitions, according to David Mannarino, a Brussels-based corporate banker for Fifth Third Bancorp, which lends to the company.

There’s also the prospect of lucrative capital markets business with Glencore International Plc and Xstrata Plc selling almost $19 billion of bonds in 21 issues between February 2011 and their merger in May, Bloomberg data show. The combined group said last month it will spend as much as $29 billion on new projects over the next three years.

The credit facility for Baar, Switzerland-based Glencore, replaces debt including $12.8 billion of credit lines obtained last year as well as the acquired London-based miner’s own $6 billion credit line, which has been canceled. Glencore paid an interest margin of 175 basis points more than the London interbank offered rate on an $8 billion revolving portion of the debt.

A spokesman for Glencore, who asked not to be named citing company policy, declined to comment on the financing.

Trading Liquidity

Glencore Xstrata will use its revolving credit facilities mainly to back day-to-day trading, according to Largey, with the company also requiring billions of dollars to take advantage of opportunistic purchases in times of commodity price swings.

The company typically draws money from the facilities for about 36 days, according to an August 2012 results presentation from Glencore. Commodity traders regularly draw and repay revolving credit facilities over short periods to finance the purchase and delivery of metal, energy and agricultural assets.

“In the commodity business, spreads on trades are thin and there is continued margin pressure, so the only way Glencore Xstrata can get more trade revenue is by increasing their volumes,” said Fifth Third Bancorp’s Mannarino. “The more commodities they can move around the world, the more money they make.”

Glencore changed its name from Marc Rich & Co. after management bought out Marc Rich, the former fugitive financier who was pardoned by President Bill Clinton on his final day in office in 2001. It ended more than three decades of being a closely-held partnership when it sold shares in an initial public offering in 2011.

Glencore Financials

Glencore Xstrata would have had revenue of about $236 billion last year after adding Xstrata’s $31.6 billion of sales, according to its 2012 pro-forma figures released May 3. Glencore’s cost of goods sold was $210 billion, the results show. This means income attributable to equity holders for the year was $1 billion for Glencore and $1.2 billion for Xstrata.

The combined company’s net debt was about $29 billion compared with adjusted earnings before interest, taxes, depreciation and amortization of $12.9 billion, the pro-forma results show, a ratio of 2.27 times. The newly combined company has a market value of about 41 billion pounds ($64 billion).

Glencore made about half of its 2012 revenue in Europe, according to data compiled by Bloomberg, with 64 percent of its global earnings coming from energy products, while metals and minerals account for 26 percent and agricultural products 10 percent, the data show.

Share
New Message
Please login to post a reply