Glen­core’s trad­ing unit needs to off­set min­ing woes

The Pak Banker - - BUSINESS -

Glen­core Plc needs it com­modi­ties-trad­ing divi­sion to help off­set a slow­down at its min­ing unit as the rout in raw-ma­te­rial prices deep­ens, ac­cord­ing to Stan­dard & Poor's.

"Do we see some sig­nif­i­cant stresses on the min­ing busi­ness, has the mar­ket­ing busi­ness slightly un­der­per­formed in first half 2015? Well yes it did," Si­mon Red­mond, di­rec­tor of cor­po­rate rat­ings for com­modi­ties at S&P, said in a Bloomberg Tele­vi­sion in­ter­view Tues­day. "If that mar­ket­ing busi­ness con­tin­ues to not be a bit of an off­set for the min­ing busi­ness, we may take a slightly dif­fer­ent view."

S&P has a BBB rat­ing, the se­cond-low­est in­vest­ment grade, with a neg­a­tive out­look on Glen­core, while Moody's In­vestor Ser­vice in De­cem­ber cut the Swiss firm's credit rat­ing to the low­est in­vest­ment level. Glen­core's trad­ing unit con­trib­uted about three quar­ters of the com­pany's ad­justed earn­ings be­fore in­ter­est and tax in the first half of 2015.

The com­mod­ity rout has eroded prof­its for the big­gest min­ers and forced them to do more to pro­tect their credit rat­ings. Glen­core, run by bil­lion­aire Ivan Glasen­berg, has scrapped div­i­dend pay­ments, sold new shares and flagged as­set sales to help cut its $30 bil­lion debt load. It said in De­cem­ber that it plans to re­duce debt to as low as $18 bil­lion by the end of this year.

"They've got the min­ing busi­ness, they've got all the woes there, but the mar­ket­ing busi­ness in prin­ci­ple should be a bit more sta­ble through the cy­cle," Red­mond said. Glen­core shares have dropped 69 per­cent in Lon­don in the past year, valu­ing the com­pany at about $17.5 bil­lion. The Bloomberg Com­mod­ity In­dex, a mea­sure of re­turns for 22 raw ma­te­ri­als, reached the low­est since at least 1991 last month af­ter a slow­down in big­gest user China led to over­sup­plies.

The plunge has led to a a raft of down­grades for min­ers. BHP Bil­li­ton Ltd., the big­gest pro­ducer, this week had its rat­ing low­ered one step by S&P to A, a level un­seen since 2003. S&P said ac­tion on cap­i­tal ex­pen­di­ture and div­i­dends will dic­tate whether a fur­ther re­duc­tion is war­ranted. Peter Grauer, the chair­man of Bloomberg LP, the par­ent of Bloomberg News, is a se­nior in­de­pen­dent non-ex­ec­u­tive di­rec­tor at Glen­core.

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