About sums it up.13 May 2019 13:08
LONDON (Alliance News) - Miner and commodities broker Glencore PLC on Monday was handed a ratings upgrade from Moody's Investors Service.
Moody's has boosted Glencore's long-term issuer rating to Baa1 from Baa2, and it has done the same for the senior unsecured rating.
Glencore's P-2 short-term ratings have been affirmed.
However, Moody's has changed the outlook on the ratings to Stable from Positive.
Sven Reinke, a senior vice-president at Moody's, said: "Upgrading Glencore's ratings reflects the sustained improved operating performance and continued conservative management of the balance sheet structure and leverage profile of the company.
"While we don't expect Glencore's financial profile to strengthen further beyond the level achieved in 2018, sustained low production cost and reduced debt levels have increased the company's resilience to volatile commodity prices."
Moody's praised Glencore's credit profit, earnings generation, reduced debt, and higher funds from operations, on top of a "conservative" dividend policy.
For 2018, Glencore paid 20 US cents per share, flat year-on-year, and also decided to return an extra USD2 billion in 2019 via a buyback.
Moody's sees Glencore's adjusted earnings before interest, tax, depreciation, and amortisation falling to USD13.5 billion in 2019 from USD15.6 billion in 2018 due to commodity price falls, but Glencore's financial profile would still be strong.
"The Baa1 rating reflects Glencore's solid position as a large, diversified commodities mining and marketing company with a large and well-diversified portfolio of mining assets," said Moody's.
"Glencore's substantial commodity Marketing franchise contributes strongly to its earnings and free cash flow generation and proved to be resilient in the environment of falling commodity prices," it continued.
"Moody's considers Glencore's Marketing operations to be a positive differentiating credit factor, contributing to lower volatility in earnings and counter-cyclical working capital movements, as well as the company's ability to generate strong free cash flow through periods of declining commodity prices."
One issue weighing on the rating going forward is governance and Glencore's environmental record, especially given Glencore operates in more high-risk areas such as the Democratic Republic of the Congo.
Were it operating in lower-risk areas, Moody's said ratings would be higher and closer to peers such as Rio Tinto PLC and BHP Group PLC.
The stable outlook is based on Glencore maintaining its financial conservatism, and on investigations into the firm by the US Department of Justice and the US Commodity Futures Trading Commission will not result in a material financial impact.
A move upwards is "unlikely" in the medium-term, Moody's said, but if Glencore improves geographic distribution and environmental risk this could change.
Ratings could come under pressure if Glencore abandons its financial policy, inc
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