Glencore Loan Wins Banks on Future Business: Corporate Finance – by Stephen Morris (Bloomberg News – June 19, 2013)

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Glencore Xstrata Plc (GLEN) raised the biggest loan on record for a commodity trader at interest rates below those offered to competitors as the 80 banks backing the deal count on winning future business from the company.

The world’s biggest publicly-traded commodity supplier signed $17.3 billion of revolving credit facilities last week, paying a margin of 90 basis points more than benchmark rates for a three-year portion, according to data compiled by Bloomberg. That’s 47.5 basis points less than Vitol Group, the largest independent oil trader, pays on its main $5 billion credit line, and 100 basis points less than Trafigura Beheer BV’s $2.9 billion deal, the data show.

“Banks have fallen over themselves to provide credit as they see Glencore Xstrata as an active and attractive counterparty, which has a big trading book,” said Jeff Largey, head of European metals and mining equity research at Macquarie Group Ltd. (MQG) in London. “Glencore Xstrata is seen as a growth company, it’s been acquisitive in the past and it will remain so. If you’re seen as extending credit to them, that potentially opens up other business opportunities.”

Glencore, which generated revenue of $214 billion last year trading commodities including coal, oil and corn, awards relationship banks ancillary business in trade financing, currency hedging, and acquisitions, according to David Mannarino, a Brussels-based corporate banker for Fifth Third Bancorp, which lends to the company.

There’s also the prospect of lucrative capital markets business with Glencore International Plc and Xstrata Plc selling almost $19 billion of bonds in 21 issues between February 2011 and their merger in May, Bloomberg data show. The combined group said last month it will spend as much as $29 billion on new projects over the next three years.

The credit facility for Baar, Switzerland-based Glencore, replaces debt including $12.8 billion of credit lines obtained last year as well as the acquired London-based miner’s own $6 billion credit line, which has been canceled. Glencore paid an interest margin of 175 basis points more than the London interbank offered rate on an $8 billion revolving portion of the debt.

A spokesman for Glencore, who asked not to be named citing company policy, declined to comment on the financing.

Trading Liquidity

Glencore Xstrata will use its revolving credit facilities mainly to back day-to-day trading, according to Largey, with the company also requiring billions of dollars to take advantage of opportunistic purchases in times of commodity price swings.

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