Glencore rating now just a notch above junk: Moody’s

Rating agency Moody’s on Friday said it cut its credit rating for mining giant Glencore to a notch above junk status as low commodities prices would continue to cut into earnings.

Moody’s Glencore rating went to Baa3 from its previous Baa2 notation.

“The pricing environment in mining will remain unfavourable in 2016-17, making a return to the previous level of earnings unlikely,” said Moody’s Glencore lead analyst Elena Nadtotchi in a statement.

Weak metal prices had “significantly reduced the earnings capability” of Glencore’s industrial division, she said.

Moody’s, however, added that Glencore’s ratings outlook was now stable, reflecting confidence that Glencore would adjust its balance sheet and avoid sinking to junk status.

Many institutional investors are barred from holding speculative bonds, also known as “junk” in their portfolios, which is why a downgrade to junk often leads to sharp selloffs in a company’s bonds.

Glencore, the world’s largest mining company, widened its debt-trimming plan this month with deep cuts in investment and more asset sales in an effort to cope with a dramatic commodities downturn.

Elsewhere in the sector, mining giant Anglo American has announced a reduction of its workforce by almost two-thirds and Rio Tinto, another major mining player, has announced slashing capital spending. (AFP)