London, 07 February 2012 -- Moody's Investors Service has today placed all the ratings of Glencore
International AG and Xstrata Plc, as well as those of their guaranteed
subsidiaries, on review for possible upgrade following their announced
all-share merger. The initiation of this review reflects
Moody's favourable assessment of the planned merger in terms of diversification
and synergies, as well as the uncertainties surrounding the final
details and execution of the proposed transaction.
RATINGS RATIONALE
Moody's review will focus on the business profile of the combined
entity, the new strategy and financial policy, the new entity's
corporate governance framework and financial and liquidity policy,
as well as the integration timetable and risks.
The proposed transaction has been approved by the Boards of Directors
of both companies and would create one of the world's largest mining
and commodities trading companies.
RATIONALE FOR REVIEW FOR UPGRADE
The review will focus on an assessment of the following factors:
(a) The business profile of the combined entity. The merger will
increase the diversification of both companies, with Glencore achieving
stronger control over the high-quality mining resources of its
currently 34%-owned associate Xstrata, and the latter
gaining full access to the trading and logistic platform of Glencore (compared
to existing off-take agreements with Glencore covering ferrochrome
and nickel only). However, Glencore is also contributing
its smaller portfolio of near-term growth mining assets,
which are mostly located in countries characterised by higher instability,
such as Zambia, Kazakhstan, Republic of Congo and Colombia,
where Xstrata is marginally or not present at all.
(b) The new strategy and financial policy. Both companies have
publicly committed themselves to maintaining an investment-grade
rating, but they have differing strategic approaches and track record
in terms of financial discipline.
(c) The new corporate governance framework. This is of critical
importance for a smooth transition into a new entity of management teams
with different backgrounds and corporate cultures.
(d) The financial profile of the new post-merger entity.
Moody's will take into account Glencore's lower EBITDA and
profitability and larger debt compared to Xstrata, as well as Xstrata's
much larger capex plan over the coming years which, if confirmed,
will have a material impact on free cash flows.
(e) The post-closing liquidity profile. On the one hand,
a change of control clauses might trigger an immediate repayment under
some facility agreements; on the other, Moody's understands
that committed back-stop facilities have been made available from
relationship banks to the new group. Furthermore, confirmation
of the status of Glencore's and Xstrata's bonds in the new
structure would be important for notching considerations on the different
rated debt instruments.
(f) The integration timetable and risks, the expected operating
and financial synergies and the operating outlook for the combined entity.
If the merger were to go ahead, Moody's expects that a possible
upgrade of Glencore's and Xstrata's ratings would likely be
limited to one notch.
The principal methodology used in rating Glencore International AG and
Xstrata plc was the Global Commodity Merchandising & Processing Companies
Industry Methodology published in December 2011. Please see the
Credit Policy page on www.moodys.com for a copy of this
methodology.
Headquartered in Baar, Switzerland, Glencore International
AG (Glencore) is a leading publicly listed diversified natural resources
group. Its activities are organised around three main business
groups (Metals & Minerals, Energy Products and Agricultural
Products) that are sub-divided into six commodity departments.
These departments are responsible for managing the marketing, sourcing,
hedging, logistics and industrial investment activities relating
to their respective commodities. In the 12 months to June 2011,
the company reported EBITDA of USD5.4 billion on revenues of approximately
USD167 billion.
Headquartered in Zug, Switzerland, Xstrata plc is a global
mining company with major operations in base metals, coal and alloys
located in the Americas, Australia, South Africa and Europe.
In the 12 months to June 2011, the company reported consolidated
revenues of USD33.7 billion and unadjusted EBITDA of USD11.2
billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
entity, obligation or credit satisfactory for the purposes of issuing
this review.
Moody's adopts all necessary measures so that the information it
uses in assigning a rating is of sufficient quality and from sources Moody's
considers to be reliable including, when appropriate, independent
third-party sources. However, Moody's is not
an auditor and cannot in every instance independently verify or validate
information received in the rating process.
Moody's Investors Service may have provided Ancillary or Other Permissible
Service(s) to the rated entity or its related third parties within the
two years preceding the credit rating action. Please see the special
report "Ancillary or other permissible services provided to entities
rated by MIS's EU credit rating agencies" on the ratings disclosure
page on our website www.moodys.com for further information.
Please see the ratings disclosure page on www.moodys.com
for general disclosure on potential conflicts of interests.
Please see the ratings disclosure page on www.moodys.com
for information on (A) MCO's major shareholders (above 5%)
and for (B) further information regarding certain affiliations that may
exist between directors of MCO and rated entities as well as (C) the names
of entities that hold ratings from MIS that have also publicly reported
to the SEC an ownership interest in MCO of more than 5%.
A member of the board of directors of this rated entity may also be a
member of the board of directors of a shareholder of Moody's Corporation;
however, Moody's has not independently verified this matter.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has
issued the rating.
Gianmarco Migliavacca
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Olivier Beroud
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's places Baa2 ratings of Glencore and Xstrata on review for upgrade
