Merger closing near, Glencore ratings affirmed

by Josh Sosland
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LONDON — Days after European Union regulatory approval of the companies’ merger and key shareholder votes, Glencore International AG and Xstrata P.L.C. received confirmation of the Baa2/Prime-2 senior unsecured credit rating by Moody’s Investors Service. The ratings outlook is stable. On Nov. 20, shareholders of both of the Switzerland-based companies approved the merger, though an executive retention plan was rejected by Xstrata shareholders. The E.U. approval was secured when Glencore agreed to reduce its position in the zinc mining market. The merger remains subject to approval from authorities in South Africa and China.

Moody’s said the merger will result in the world’s largest combined commodity trading and mining group. The agency said the merger will increase the diversification of both companies. The combined business will become more prominent in the agricultural sector when Glencore completes its acquisition of the Australian and Canadian grain-handling assets of Viterra Inc.

Moody’s said the rejection by Xstrata shareholders of the retention package could imperil an ambitious integration plan with targets that include $500 million in synergies in the first year and integrating into the new group several acquisitions nearing completion or recently completed by Glencore.

“Moody’s expects the liquidity profile of the combined group to be solid,” the agency said. “This is despite the large cash outflows for the execution of the capex plan, the working capital needs of the expanding trading business, the acquisitions already announced but not yet finalized (Viterra), and dividend payments.”

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