DBRS Comments on Xstrata’s Intercompany Financing

DBRS notes that Xstrata Plc’s (Xstrata or the Company) subsidiary, Falconbridge Limited (Falconbridge), completed an intercompany financing pursuant to which Xstrata Canada Inc. (Xstrata Canada), the holder of 100% of Falconbridge’s common shares, made a $14 billion subordinated loan to Falconbridge. Falconbridge also subscribed for $14 billion of redeemable preference shares from a wholly owned subsidiary of Xstrata Canada having a redemption value of $14 billion. The Xstrata Canada loan to Falconbridge bears interest at an annual rate of 5.5% and is subordinated to Falconbridge’s debt to third parties, including Falconbridge’s publicly traded debt. The redeemable preferred shares subscribed for by Falconbridge carry a cumulative preferred dividend of 5.51%. Falconbridge and Xstrata expect that the dividends received by Falconbridge on the redeemable preferred shares will provide sufficient funds for the payment by Falconbridge of interest on the loan from Xstrata Canada.

This intercompany transaction does not effect the ratings of Falconbridge, as Falconbridge’s senior, publicly traded debt and its cumulative redeemable preferred shares continue to be fully and unconditionally guaranteed by Xstrata.

For more information on Xstrata, please see DBRS’s rating report published on December 15, 2006.

Note:
All figures are in Canadian dollars unless otherwise noted.