Bloomberg News

Moody’s Says Glencore-Xstrata Merger to Be ‘Credit Positive’

February 07, 2012

(Updates with analyst comment in second paragraph.)

Feb. 6 (Bloomberg) -- Glencore International Plc’s proposed merger with Xstrata Plc would be “credit positive” for both companies, Moody’s Investors Service said.

“Glencore, which already has a 34.4 percent stake in Xstrata, stands to benefit the most if the merger proceeds, as its business and financial profiles would strengthen,” Gianmarco Migliavacca, a senior Moody’s analyst, said in a weekly credit outlook. “We also expect Glencore’s profitability and leverage credit metrics would benefit from the merger.”

The largest publicly traded commodities supplier approached Xstrata to propose an all-share merger, according to a statement on Feb. 2. A deal, larger than any previously in the industry, may create a merged company valued at about 56.5 billion pounds ($89 billion), after excluding Glencore’s 12.8 billion-pound stake in Xstrata, based on the current share price.

“Xstrata would gain access to Glencore’s trading platform, logistical support (Glencore owns ports, warehouses and ships) and market intelligence in a merger,” Migliavacca said. That “could enhance its competitiveness by enabling it to maximize margins through better marketing its activities.”

Glencore debt investors are betting that the merger would lower borrowing costs. Glencore credit-default swaps have fallen more than any other European contracts this past month. The cost of insuring its debt slid 53 percent to 217 basis points since Jan. 3, with the rally accelerating last week, CMA prices show.

BHP Rival

A merger would create a mining and trading company rivaling BHP Billiton Ltd. and Rio Tinto Group, Moody’s said. It would support Xstrata’s investment program, “considering Glencore’s high cash balance following its IPO last year,” Moody’s said. Baar, Switzerland-based Glencore raised $10 billion in an initial public offering in London in May.

Xstrata, the largest thermal coal exporter, plans to raise its overall output 50 percent through 2014 and approved seven projects with a total investment of $2.6 billion last year.

“Xstrata currently has less debt and is more cash generative than Glencore because mining is a higher margin business than trading,” according to the Moody’s report.

--With assistance from Ben Martin in London. Editors: Tony Barrett, John Viljoen

To contact the reporter on this story: Firat Kayakiran in London at

To contact the editors responsible for this story: John Viljoen at;

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