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From Bust to Boom

16 March 2017 by lberuti

The last 15 months have marked a spectacular reversal of fortune for commodity related companies. They have gone from bust to boom, and are back in fashion. Nevertheless, news that Mr Agarwal, an Indian scrap metal trader turned billionaire mining tycoon, plans to buy as much as £2Bln of AALLN (Anglo American Plc) shares in the market according to a statement from Volcan Investments Ltd, a holding company owned by the Agarwal family, came as a surprise. That would make him the second largest shareholder with 13% of the company. While this is a secondary market transaction and no fresh capital is injected into AALLN, the first order impact on credit is neutral. However, the ultimate motivation of such a move are still unknown. It could be a first step towards closer ties with Vendanta Resources, the mining company founded by Mr Agarwal, which is smaller – it has a £2.4Bln market capitalisation – and has weaker credit metrics. That is certainly what worried investors when they pushed AALLN’s 5-year risk premium 6bps wider at 176bps and made it underperform its peers.