By Ben Edwards
Anglo-Swiss mining group Xstrata PLC (XTA.LN) is seeking to sell
two lots of debt Thursday, taking advantage of favorable funding
conditions ahead of a potential merger with Glencore International
PLC (GLEN.LN).
Xstrata is offering up a 3.5-year and six-year bond to raise at
least 1 billion euros ($1.27 billion) just days before shareholders
vote Tuesday on the proposed merger with commodities and mining
giant Glencore.
The two companies are seeking shareholder and regulatory
approval for their all-share merger to create the world's
fourth-largest diversified miner, with a market capitalization of
around $68 billion.
Xstrata will price the 3.5-year bond at 100 basis points over
the reference midswap rate and the six-year bond at 140 basis
points. By comparison, when Glencore sold a six-year bond in March,
it paid 240 basis points over midswaps, although that bond is now
trading at around 165 basis points, Tradeweb data show.
"As they are doing a deal so close to the vote, it seems
investor feedback has forced them to price this closer to the
Glencore curve rather than the existing Xstrata curve," said Sam
Barker, an investment analyst at ECM Asset Management.
The timing of the sale suggests the company is just trying to
get one last chunk of funding through under the Xstrata name before
the merger goes ahead, Mr. Barker added.
Bankers working on the deal said the cash will be used for
general corporate purposes.
Orderbooks for Thursday's sale were in excess of EUR6 billion by
mid-morning, suggesting healthy interest in the bonds, despite the
uncertainty hanging over the potential merger.
"Relative to existing Xstrata debt in the secondary market it's
cheap, and the differential between existing Glencore bonds is
quite narrow, so on that basis we think it's a reasonably
attractive transaction," said one U.K. investor who participated in
the deal, but asked not to be named.
Glencore also issued debt earlier this month when it tapped an
existing sterling bond maturing April 2022. That bond is subject to
a 50-basis-point coupon step up if the merger with Xstrata is not
completed before April next year.
Xstrata wouldn't comment on Thursday's bond sale when contacted
by phone.
The company is rated Baa2 by Moody's Investors Service Inc. and
BBB+ by Standard & Poor's Corp, and the bond will be issued
through Xstrata Finance (Dubai) Ltd.
Deutsche Bank AG, Lloyds Banking Group PLC, Mitsubishi UFJ
Securities International and Santander are the banks running the
sale.
--Alex MacDonald contributed to this article.
Write to Ben Edwards at ben.edwards@dowjones.com