Bloomberg News

Glencore Bonds Jump to Record Amid Talks to Buy Xstrata

February 02, 2012

(Updates with analyst comment in fourth paragraph.)

Feb. 2 (Bloomberg) -- Glencore International Plc bonds surged to a record after miner Xstrata Plc said it was in talks with the world’s largest listed commodity trader.

Glencore’s 1.25 billion euros of 5.25 percent bonds due March 2017 rose to 105.6 cents on the euro to yield 4 percent, after advancing to as much as 107.6, Bloomberg Bond Trader prices show. The cost to insure the Baar, Switzerland-based firm’s debt against default fell to a seven-month low.

Glencore made an approach about an all-share offer for “a merger of equals,” Zug, Switzerland-based Xstrata said today in a statement. Glencore, which already holds a 34 percent stake in the miner, said there was no certainty of an offer.

“The worst-case scenario would be that they did a hostile debt-financed takeover attempt,” said Michael Ridley, an energy and utilities credit analyst at Mizuho International Plc in London. “That was a slight fear in the bond markets, but sensibly, given that they’re trying to do a merger, they want to do a share-swap merger.”

Credit-default swaps tied to Glencore’s debt dropped 54 basis points to 265 basis points at 11 a.m., the lowest since July 4, according to CMA. A decline in the price of the debt- insurance contracts indicates improvement in perceptions of credit quality.

A share-funded acquisition is “much less credit negative” and means Glencore would probably keep its investment-grade rating, Ridley said. The commodities trader is ranked Baa2 by Moody’s Investors Service and an equivalent BBB at Standard & Poor’s.

--Editors: Andrew Reierson, Michael Shanahan

To contact the reporter on this story: Ben Martin in London at bmartin38@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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