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.”
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.
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 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.
Standard & Poor’s rates the company BBB, its second-lowest investment-grade ranking. The grade is supported by Glencore Xstrata’s diverse businesses, with industry and mining providing 80 percent of Ebitda and commodity trading the remainder, according to a May 20 report from the ratings firm.
“We expect debt to increase slightly in 2013 because of the ambitious capital expenditure program in a weakening commodity price environment,” S&P said in the report.
Glencore Xstrata has interests in about 35 coal mines in Colombia, Africa and Australia, accounting for about 10 percent of global seaborne supplies of the fuel. It’s the fourth-biggest producer of mined copper and third-largest in nickel, and employs about 190,000 people in more than 50 countries across its industrial and trading divisions.
The loan, negotiated by Glencore Xstrata’s Chief Executive Officer Ivan Glasenberg and Chief Financial Officer Steven Kalmin, is the largest corporate credit line for a European company in more than six years, Bloomberg data show. The company increased the size by 45 percent from the $12 billion originally sought.
Peter Grauer, chairman of Bloomberg LP, the parent company of Bloomberg News, was appointed non-executive director of Glencore Xstrata, according to a June 12 statement.
Enel SpA (ENEL) raised 18 billion euros ($24 billion) of credit lines as part of a 43 billion-euro deal to buy shares in Spain’s Endesa SA (ELE) in 2007, the data show.
European companies have raised 251 billion euros of loans so far this year, a 10 percent decline from the 278 billion euros in the same period in 2012, according to Bloomberg data. The market was at its peak in 2007 when more than 544 billion euros was raised in the year to June 18.
Debt markets are improving this year for the largest companies after the financial crisis, as banks want to boost lending to the most credit-worthy borrowers. The U.K.’s biggest companies are reporting credit is cheaper and more easily available than at any time in the past five years, the Bank of England said in April, citing a survey by Deloitte LLP.
Anglo American Plc, the world’s largest platinum producer, refinanced a credit line due in 2015 with a new $5 billion loan in March, reducing its interest margin by 10 basis points to 70 basis points more than Libor, Bloomberg data shows.
Glencore Xstrata hired Royal Bank of Scotland Group Plc to coordinate the loan, with Banco Santander SA, Barclays Plc, Commerzbank AG and Societe Generale SA also helping to arrange the debt, Bloomberg data show. The 29 banks participating as mandated lead arrangers lent $450 million each, and other lenders had the option of committing smaller amounts down to $25 million.
“We have continued to find strong appetite from the bank market for commodity traders,” said Richard Hill, global head of loan sales and trading at Societe Generale. “We have also seen new lenders entering the market over the last few months, notably Asian and Middle Eastern banks.”
The deal comprises a $5.9 billion one-year revolving credit facility, a $7.1 billion three-year credit line, and a $4.35 billion five year revolver, according to data compiled by Bloomberg.
The facilities pay initial interest margins from 80 basis points, or 0.8 percentage point, to 90 basis points more than Libor, the data show. Fees to draw on the lines range from zero on the one-year portion to 75 basis points on the five-year, dependent upon their use.
Commodity traders have raised or are currently seeking at least $34 billion of revolving credit facilities since December, according to data compiled by Bloomberg. Oil traders account for the majority of the debt, with Trafigura Beheer BV, the third-largest independent oil trader, obtaining a $4.3 billion loan in February, boosting the size more than 40 percent after 50 lenders joined the deal, the data show.
Geneva-based Mercuria Energy Trading SA is currently looking to arrange a $1.4 billion credit line, and Gunvor Group raised $1.16 billion of loans through its European unit and $850 million in Singapore during the period, the data show.
Agricultural trader ED&F Man Holdings Ltd. attracted 59 banks to a $1.89 billion deal in March, U.S.-based Cargill Inc. signed $1.25 billion of credit lines the same month, and Singapore-based Noble Group Ltd. raised a $2.1 billion loan with 31 banks last month, the data show.
“The size and pricing of Glencore Xstrata’s facility is a sign that there is strong liquidity for commodity traders in the market,” said Ian Fitzgerald, chief executive officer of Loans & Syndication Advisory Services Ltd. and former head of loan markets at Lloyds Banking Group Plc. “Banks are short on deals, and are keen to extend their balance sheet to good quality corporates.”
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