DBRS Comments on Possible Glencore Offer for Xstrata

DBRS today notes that Xstrata plc has announced that that it is in discussions with Glencore International plc (Glencore) regarding an all-share merger of equals, which may or may not lead to an offer being made by Glencore for Xstrata. DBRS believes that if a merger of Xstrata and Glencore is completed, the financial structure of the ensuing entity could materially differ from Xstrata’s existing financial structure, potentially leading to a change in the risk profile of Xstrata and its related companies’ debt securities and the need to re-examine the ratings of those securities and companies.

Xstrata’s announcement makes it clear that there can be no certainty that any offer will be made by Glencore. It also indicates that, under U.K. securities legislation, Glencore is required to announce either a firm intention to make an offer for Xstrata, or that it does not intend to make an offer for Xstrata, by no later than 5:00 p.m. on March 1, 2012.

Glencore is a leading integrated producer and marketer of commodities and currently owns approximately 34% of Xstrata. Glencore’s reported adjusted EBITDA for the first half of 2011 was $3.8 billion and its total assets, $81.4 billion, including its investment in Xstrata. Xstrata’s reported operating EBITDA after exceptional items for the first half of 2011 was $5.9 billion and it held total assets of $73.3 billion.

On November 21, 2011, DBRS confirmed the ratings of Xstrata plc and its related entities at A (low), R-1 (low) and Pfd-2 (low), all with Stable trends. The confirmation reflected Xstrata’s solid balance sheet and credit metrics and ongoing improvements in the cost-competitiveness of its large-scale, diversified operations.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Mining Industry, which can be found on our website under Methodologies.

DBRS published a full report on Xstrata on November 24, 2011. If you are interested in receiving this report, contact us at info@dbrs.com.