Glencore Plans To Sell Assets To Fund Prodeco Repurchase (ANR)

Glencore International AG, the world’s largest commodity trader, is looking to sell at least $1 billion of its assets in the next three to six months to fund its repurchase of the Prodeco coal unit from Xstrata Plc (ADR) (OTC: XSRAY).

Glencore sold Prodeco last year for $2 billion to fund its participation in Xstrata’s £4.1 billion rights offer. Coal prices have risen since then, and Glencore said it decided to exercise its option to buy back Prodeco for $2.25 billion plus profits accrued by the unit, and cash invested by Xstrata.

Francois Lauras, a credit analyst at Moody’s Investors Service in London, said that Glencore’s decision to repurchase Prodeco reflects its view that the fair value of these coal assets comfortably exceeds the repurchase price. Glencore is looking for a $1 billion six-month bridge facility to fund the repurchase and the company said that the requisite bank approvals are in place.

Alex Herbert, London-based S&P analyst, said that S&P views this repurchase as broadly neutral to Glencore’s credit profile. Glencore is currently rated at BBB-, the lowest investment grade rating by S&P, and at Baa2 by Moody’s. According to CMA DataVision, credit-default swaps on Xstrata dropped 14.5 basis points, and those of Glencore fell by 2.5 points indicating an improvement in the perceptions of credit quality.

According to the London-based Times, Glencore is in talks with potential partners in Prodeco, including Brazil’s Vale SA, First Reserve Corp., Alpha Natural Resource, Inc. (NYSE: ANR), and Government of Singapore Investment Corp.