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Rating Action:

Moody's changes outlook to stable, affirms Glencore's Baa1 rating

14 Sep 2021

London, 14 September 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Baa1 long term issuer rating of Glencore plc ("Glencore") and the group's Baa1 senior unsecured instrument ratings. Concurrently, Moody's affirmed Glencore's P-2 short term ratings as well as the (P)Baa1 senior unsecured rating on Glencore's medium-term note (MTN) programme. The outlook on all ratings was changed to stable from negative.

"Changing the outlook on Glencore's ratings to stable reflects the fast recovery from the Covid-19 related deterioration of the company's earnings which impacted the financial profile in H1 2020. Glencore is now solidly positioned in the Baa1 rating category and the outlook change also reflects our expectation that the company will retain strong financial flexibility," says Sven Reinke, a Moody's Senior Vice President and lead analyst for Glencore.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's outlook change reflects the significantly improved earnings and reduced debt level in H1 2021 as well as Moody's expectation that Glencore's operating and financial performance will strengthen further in H2 2021 and remain resilient thereafter. After weak EBITDA generation in 2020, driven by Covid-related operational disruptions and falling commodity prices in the first half of the year, Glencore's Moody's adjusted EBITDA increased to $12.8 billion as of the last twelve months (LTM) to June 2021 from $9.2 billion in 2020. Glencore's earnings growth was mainly driven by higher profits at the company's copper segment, which increased its reported EBITDA to $3.9 billion in H1 2021 compared with $1.3 billion in H1 2020 as copper prices reached a multi-year high during the first half of 2021. The company also reduced its Moody's adjusted debt to $24.9 billion at the end of June 2021 from $28.2 billion at the end of 2020. Higher earnings and reduced Moody's adjusted debt has positioned Glencore more solidly in the Baa1 rating at the end of June 2021 with Moody's adjusted debt / EBITDA at 2.0x. This compares favorably with the 3.1x level at the end of 2020, which, if sustained for a longer period, could have resulted in a downgrade of the ratings.

Based on Moody's base case assumptions of gradually retreating commodity prices from the high current spot levels and stable EBITDA generation of the Marketing operations within the company's $2.2 billion - $3.2 billion EBIT guidance, the rating agency projects Glencore's Moody's adjusted EBITDA to rise to around $19 billion in 2021 before falling moderately to around $16 billion in 2022 and to around $14 billion in 2023. Moody's forecasts that the company's cash flow from operations (CFO) increases to around $11 billion in 2021 as the significantly higher EBITDA is partially offset by working capital outflow of around $2 billion. However, despite the forecast for lower EBITDA generation in 2022-23, the company's CFO is expected to rise further to around $14 billion in 2022 and to remain very healthy at around $13 billion in 2023 as Moody's assumption of gradually falling commodity prices results in working capital inflow of more than $2 billion annually in 2022-23.

Moody's also assumes that Glencore will return excess cash to shareholders in order to have a net debt level (as defined by the company) of no less than $10 billion. Accordingly, Moody's incorporates additional shareholder payments on top of ordinary dividend payments of around $1.2 billion in 2021, $3.5 billion in 2022 and $3.0 billion in 2023. Nevertheless, Moody's forecasts Glencore's Moody's adjusted debt / EBITDA metric to fall to around 1.5x in 2021 and to stay below 2.0x in 2022-23.

The company's financial profile remains resilient under the conservative Moody's base case as Glencore's credit profile has defensive characteristics driven by its Marketing business which does not only enjoy relatively stable profitability levels largely uncorrelated to commodity prices but also because of the working capital release from the large commodity inventory during times of falling prices. Despite the high funding need for the large amount of marketable commodity inventory, Moody's considers Glencore's Marketing operations to be well risk-managed and an enhancement for its overall credit profile.

RATING OUTLOOK

The stable outlook reflects the improved financial performance over the last twelve months, Moody's expectation of resilient performance going forward and Glencore's stated commitment to keep leverage low over the cycle. The stable outlook is also predicated by Moody's assumption that the investigations by the DoJ and other authorities will not result in a material negative credit impact — financially or operationally — for Glencore.

ESG CONSIDERATIONS

ESG considerations are material for Moody's assessment as they constrain Glencore's ratings due to very high exposure to environmental risks, high exposure to social risks, and moderately high exposure to governance risk. The company's risk appetite exceeds that of many of its more conventional mining peers because of the decision to invest in assets in higher-risk geographies and in coal mines which are at greater risk from the energy transition towards lower carbon emissions. However, Glencore's exposure to coal is partially mitigated by its commitment to reduce total carbon emissions materially by 2035, as well as, its assets and earnings from commodities that will benefit from the energy transition and increasing electrification, such as copper, nickel and cobalt. Besides the conservative financial policy that supports the Baa1 ratings for the company, other governance aspects, such as the legacy legal exposure related to the investigations by the U.S. Department of Justice (DoJ) and other authorities with respect to Glencore's operations in Nigeria, the Democratic Republic of the Congo and Venezuela, are negative for the ratings.

LIQUIDITY

Glencore maintains good liquidity. At the end of June 2021, the group had a cash balance of $2.5 billion and $8.5 billion undrawn availability under its committed syndicated revolving credit facilities. Glencore's three committed credit facilities have an overall size of $11.2 billion ($6.6 billion maturing in May 2022, $0.5 billion in May 2025 and $4.2 billion in May 2026; the 2022 facility has a one-year extension option at Glencore's discretion). Glencore is proactively managing the maturity of its obligations, with bond maturities managed at around $3 billion in any one year. As of end of June 2021, Glencore faced around $3.3 billion in short-term bond maturities, and the company also had short-term commercial paper utilization of $1.8 billion.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the volatility in the commodities that Glencore is exposed to and the potential for wide swings in its performance, and the company's exposure to ESG risks, a higher rating is less likely in the medium term. However, the ratings could be upgraded if:

- Glencore improves its ESG risk exposure over time, and if

- the group maintains its conservative financial policy and strong credit profile over a range of commodity price scenarios

The ratings would come under negative pressure if

- Glencore records higher leverage for a prolonged period, with adjusted debt/EBITDA maintained above 2.0x on a sustained basis or

- liquidity weakens, because of sustained negative FCF or a reduction in the provision for committed liquidity facilities that support marketing operations

In addition, the ratings could be downgraded should the investigations by various authorities result in a significant negative credit impact — financially or operationally — for Glencore.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Glencore Australia Holdings Pty Limited

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

..Issuer: Glencore Capital Finance DAC

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Glencore Finance (Europe) Limited

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Glencore Funding LLC

....BACKED Commercial Paper, Affirmed P-2

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Glencore plc

....LT Issuer Rating, Affirmed Baa1

..Issuer: Xstrata Canada Corporation

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Xstrata Canada Financial Corp

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

..Issuer: Xstrata Finance (Canada) Limited

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Issuer: Xstrata Finance (Dubai) Limited

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

Outlook Actions:

..Issuer: Glencore Australia Holdings Pty Limited

....Outlook, Changed To Stable From Negative

..Issuer: Glencore Capital Finance DAC

....Outlook, Changed To Stable From Negative

..Issuer: Glencore Finance (Europe) Limited

....Outlook, Changed To Stable From Negative

..Issuer: Glencore Funding LLC

....Outlook, Changed To Stable From Negative

..Issuer: Glencore plc

....Outlook, Changed To Stable From Negative

..Issuer: Xstrata Canada Corporation

....Outlook, Changed To Stable From Negative

..Issuer: Xstrata Canada Financial Corp

....Outlook, Changed To Stable From Negative

..Issuer: Xstrata Finance (Canada) Limited

....Outlook, Changed To Stable From Negative

..Issuer: Xstrata Finance (Dubai) Limited

....Outlook, Changed To Stable From Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Glencore is a leading publicly listed natural resources group domiciled in Switzerland that combines a large and well diversified portfolio of mining assets with an extensive third-party marketing business. The company is active in all key base metals (copper, zinc, cobalt, nickel and aluminium), thermal and metallurgical coal, as well as in oil. In 2020, Glencore generated revenue of around $142.3 billion and Moody's-adjusted EBITDA of $9.2 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sven Reinke
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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