TF Briefing Glencore RCF validates turnaround effort

12 May 2017

TF Briefing

Glencore RCF validates turnaround effort The oversubscription of Glencore’s revolving credit facility (RCF) refinancing, which closed in early May, bodes well for a company that has battled to retain its investment grade rating over the past 18 months. The $7.34 billion deal was well-received by the market, attracting $8.55 billion of bids from an original launch of $5 billion. It is thought that pricing tightened on the deal this year. Led by Citi, Commerzbank, Standard Chartered and UniCredit, the unsecured facility has a one year term but could be extended until May 2019. The deal’s positive reception suggests that investors are convinced by Glencore’s recent turnaround effort, which it completed last year. In September 2015, Glencore decided to bring down its leverage and prepare itself for future downturns. The company had suffered badly in 2015 due to a severe drop in commodity prices, with earnings dropping by more than 30% that year. The financial markets became concerned about the company’s leverage ratio after ratings agency downgrades, and Glencore realised that its investment grade rating was at stake. Under the plan, Glencore brought down its net debt by more than $10 billion, from $25.9 billion to $15.5 billion (Chart 1). It raised $6.2 billion by selling off various businesses, half of which came from a 50%sale of its agriculture business. As a result, its debt-to-earnings ratio (adjusted net debt divided by EBITDA) halved, from around 3.0 to 1.5 (Chart 2). The ratio is now lower than it was before the company’s acquisition of Xstrata, the international mining firm, in 2013. Glencore’s deleveraging efforts paid off in March this year, when S&P upgraded it to BBB from BBB-. Citing improved credit metrics, the ratings agency noted the recent rally in commodity prices and expressed confidence that the company is building itself some headroom. S&P also expects Glencore’s EBITDA to increase. Given the percentage of the company’s earnings that come from metals and minerals (Chart 3), and the recent upswing in this sector, it seems likely that Glencore will enjoy year-on-year improvement to EBITDA levels over the next few quarters.

The oversubscription of the RCF financing shows investor confidence in Glencore’s financial metrics. One banker on the RCF noted “clear evidence of a return to solid performance”, adding that the “shock of 2015” had now been dispelled. See Trade Finance's Q1 2017 League Tables here

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Mandate Mill

Kina Bank of Papua New Guinea has signed an agreement with the Asian Development Bank which will see the DFI provide it with a credit guarantee facility. The European Investment Bank is among a number of DFIs lining up to lend to projects in Egypt’s 2,000MW solar feed-in-tariff programme. Maybank are understood to have joined the MLA group for the upcoming Gunvor Singapore refinancing, with all active bookrunners from last year’s revolver participating again. KDB and Kexim have agreed to provide a restructuring plan to bankruptcy threatened Daewoo Shipbuilding and Marine Engineering. UK Export Finance has signed what it calls a “historic” memorandum of understanding with the Iraqi government to identify critical infrastructure projects for financing. Korea Eximbank is to provide a $1 billion loan towards the ECA and commercial bank financing for the Clean Fuels Project refinery financing in Kuwait. Hungarian Export-Credit Bank is to extend a €255 million ($270 million) credit line for exports to Turkey in order to increase the volume of trade between the country’s from roughly $3 billion to around $5 billion. Afreximbank is arranging up to $1.5 billion in financing for projects under Burkina Faso’s five-year National Economic and Social Development Plan.

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Trade Finance Q1 2017 league tables The tradefinanceanalytics Q1 2017 league tables are now live.

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