We have added an investment grade AUD fixed rate bond with an indicative yield to maturity of 8.83%pa to our DirectBonds list. The bond is available to wholesale investors only in $10,000 parcels
Glencore Australia Holdings Pty Limited has been added to our DirectBond list. The issuer is a wholly owned subsidiary of Glencore plc (Glencore) which is also one of the guarantors of the bond.
Bond details:
| Glencore Australia Holdings Pty Limited 4.50% 19 September 2019 AUD bond |
| Issuer | Glencore Australia Holdings Pty Limited |
| Maturity date | 19 September 2019 |
| Bond type | Fixed |
| Coupon | 4.50% |
| Indicative yield to maturity | 8.83% |
| Income (running yield) | 5.17% |
| Face value | AUD10,000 |
| Capital value | AUD8,700 |
Glencore is currently rated investment grade BBB-/Baa3 with a stable outlook.
Due to the fall in commodity prices, Glencore’s earnings and credit profile have weakened, however, the company has announced a number of initiatives to reduce net debt by USD13bn to around USD18-19bn by the end of 2016. The aim is to adapt the business to the current commodity landscape. Initiatives include: suspending dividends, raising equity, asset sales, material cost reductions as well as targeted production cuts. The company expects to be free cashflow positive over 2016 at current (spot) commodity prices.
While success on its debt reduction strategy is partly dependent on achieving proposed asset sales, USD8.7bn of debt reduction measures have already been achieved or are locked in giving a level confidence the company can deliver on its plans. With a credible pathway to achieving material debt reduction, we expect to see Glencore’s credit risk recede over the course of 2016.
We emphasise the key risk to Glencore’s earnings and credit risk profile is further deterioration and uncertainty in commodity prices, and as such we would see exposure to this name being in a well diversified bond portfolio subject to risk appetite. If Glencore’s credit risk reduces over time (which is our expectation) then bondholders can consider progressively increasing their allocation.
Both rating agencies have downgraded the company’s credit rating by one notch over the past year. Credit spreads on Glencore’s bonds have widened in recent months taking into account a perception of very high credit risk following the significant falls in commodity prices. Despite the investment grade credit rating, the current pricing on the bond is more reflective of a sub investment grade bond highlighting the additional risk in the commodity sector.
Click to view the Glencore research report here and the Glencore Australia Holdings Pty Ltd bond factsheet here.
*It is important to note that the indicative rates are accurate as at 23 February 2016 but subject to change.
Please contact your FIIG representative for further information and current pricing levels on the Glencore Australia Holdings Pty Ltd AUD bond. Available to wholesale investors only.