Glencore shares hit a three-month high on Wednesday after the mining and trading house completed the early refinancing of a key credit line, moving to bolster investor confidence during the worst commodity rout in decades.
Funds drawn under the $8.45bn, one-year revolving credit facility — used to finance Glencore’s daily business of transporting and storing commodities including coal, oil and copper — are expected to bear interest at around 100 basis points above US dollar Libor rates, according to people familiar with the deal, writes Neil Hume and David Sheppard.
While that is higher than the 40-45 basis points paid by Glencore over the past year, it shows that Swiss company still has access to cheap funding even as oil and metal prices have continued to slide in 2016.
“Its gets the refinancing risk off the table,” said a person familiar with the agreement .
Glencore’s shares were the biggest riser in the FTSE 100 in early trading on Wednesday, up 6.4 per cent at 109.4p a share at 08:45 GMT, the highest since November.
Analysts at RBC Capital Markets said the refinancing “provides more concrete measures that Glencore is undertaking to consolidate its funding position,” after the commodity price rout contributed to a 70 per cent drop in its shares last year.
“A back of the envelope increase in interest charge for a 50 basis point increase (and we would expect a small increase following the deterioration in credit and commodity markets) would be ~$10m per annum (and certainly not a business critical amount).”
Glencore started to approach its key lenders in January about refinancing the revolving credit facility – a month earlier than usual. Concerns about the company’s ability to manage its large debt load have weighed on its the company over the past year. The company launched a wide-ranging debt reduction programme that has targeted lowering its net debt by $13bn by the end of 2016.
In a statement Glencore said the new facility, which can be extended by a year, remained unsecured and it did not carry any covenants. It received commitments from 37 banks totalling $8.4bn in the first phase of syndication.
Thirty other banks will be offered a chance to take a piece of the credit facility which is expected to be scaled back to around $8bn when the process is completed in the second quarter.
Bookrunners on the deal were ABN AMRO, Bank of Tokyo Mitsubishi, HSBC, ING and Santander.
Last week, Glencore raised a further $500m towards its debt reduction plan through the sale of future precious metals production.