Glencore International Plc (GLEN), the largest publicly traded commodity supplier, is raising 1.6 billion euros ($2.1 billion) from a two-part bond sale, said a person familiar with the offering.
The company is issuing 1.25 billion euros of six-year securities that will be priced to yield 240 basis points more than the benchmark mid-swap rate, the person said. Glencore is also selling 300 million pounds ($479 million) of 10-year bonds that will be priced at a yield-spread of 325 basis points more than gilts, they said, declining to be identified before the deal is completed.
The interest rate on the bonds will increase by 50 basis points should Glencore fail to complete its proposed merger with Xstrata Plc (XTA) before the first coupon payment, the person said. A spokesman for Baar, Switzerland-based Glencore couldn’t immediately be reached for comment.
“The inclusion of coupon step-ups is attractive for investors relative to Glencore’s existing curve, even if neither of the step-ups appear likely to us to be triggered,” Dipankar Shewaram, of Goldbridge Capital Partners, said by e-mail. “Given the strength of the recent rally, conditions are relatively favorable for debt issuers.”
Corporate bond yields have fallen across the board as the European Central Bank’s program of providing cheap loans to banks bolsters investor confidence in the region’s credit markets. Yields on BBB-rated non-financial debt in Europe have tumbled 1 percent to 3.2 percent since the start of the year, according to Bank of America Merril Lynch index data.
Glencore last month announced a 22.3 billion-pound takeover offer for Xstrata and last week agreed to buy Canada’s Viterra Inc. (VT) with two partners for C$6.1 billion. Glencore’s “aggressive financial and acquisition policy” has been a “recurring credit weakness,” Moody’s Investors Service said yesterday.
Glencore yesterday hosted a conference call for bond investors, according to a banker involved in the plans. Barclays Capital, BNP Paribas SA, ING Groep NV and Lloyds Banking Group Plc arranged the call and today’s bond sale.
Glencore’s planned acquisition of Viterra is “credit negative” for the company, Moody’s said yesterday. Glencore, which has teamed up with Richardson International Ltd. and Agrium Inc. (AGU) for the takeover, will pay C$3.5 billion ($3.5 billion) for its share of Viterra’s assets and assume debt of about C$1 billion.
Glencore rose 0.9 percent to 405.4 pence as of 12:50 p.m. in London trading.
Standard & Poor’s yesterday said it’s maintaining a BBB long-term rating on Glencore on CreditWatch positive.
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