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Glencore International Plc (GLEN), seeking a $33 billion takeover of Xstrata Plc (XTA) by the end of the year, may retain its credit rating at Standard & Poor’s after completing the deal to create the fourth-biggest miner.
The credit quality of the combined group, to be named Glencore Xstrata Plc, is in line with the current BBB rating, “reflecting the group’s strong business risk profile and significant financial risk profile,” S&P said today in a statement.
Glencore received European Union approval for its takeover of Xstrata last week, moving it closer to completing the world’s biggest deal this year with regulatory approval in China and South Africa the only remaining hurdles. Glencore is seeking to add Xstrata’s coal, nickel, zinc and copper operations to its cotton-to-crude-oil commodities empire.
S&P estimates the combined company’s earnings before interest, tax, depreciation and amortization this year to be $13 billion to $14 billion and its adjusted debt will be near $40 billion following the planned takeover of Viterra Inc. (VT)
“The group’s financial risk profile is constrained by substantial debt, which we expect to rise sharply in 2012 and keep increasing in 2013 because of the ambitious capital expenditure program and a number of already-contracted acquisitions” S&P said.
The ratings company may study a “positive rating action over the medium term, if free cash flow turned very positive in 2014 and the group was committed to reducing debt,” it said.
Moody’s last week confirmed its Baa2 ratings on Glencore and Xstrata.
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