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No One Touches My Rating!

07 September 2015 by lberuti

GLEINT’s ( Glencore Plc ) 5 year risk premium is widening… no more. While no one can say if the tumble of commodities, which was behind the threefold increase of GLEINT’s CDS since June, is over, the company announced some bold measures to strengthen its balance sheet and protect the IG rating which matters so much to its business model. They will proceed with a fully underwritten $2.5bln right issue, save $2.4bln from the suspension of their dividend, go ahead with $2bln worth of asset sales, and suspend copper production at the loss making Katanga and Mopani operations. This is not necessarily good news for Zambia and Congo, but investors who are long risk GLEINT definitely breathed a sigh a relief. The stock closed the day up 7% and the 5 year CDS closed 121.5bps tighter at 326bps. The latter is not back to the tightest level of the year (by a fair margin and rightly so as commodity prices warrant more caution), but it explains 2/3 of the daily 1.5bps tightening of iTraxx Main fair value today.