(UPDATES to reflect Moody's upgrade)
By Will Caiger-Smith
NEW YORK, March 24 - Anglo-Swiss miner Glencore sold its
first US dollar bond in two years on Tuesday, but the deal
tumbled after pricing as a global sell-off added to a backlash
against the deal's tight spread.
The US$1bn 10-year trade is the company's first since April
2015, and follows a recovery in commodity prices since the
global decline that began that year.
But while Glencore raised relatively cheap money, investors
were unimpressed, with some dropping out of the transaction when
the spread was tightened and others dumping the bonds after
The bonds widened 4bp in the grey market after launching at
Treasuries plus 170bp - 10bp inside initial price thoughts - and
were 9bp wider on Wednesday morning.
Glencore had offered a new-issue concession of about 8bp on
the trade, but the book was less than twice covered, with final
demand of US$1.75bn.
The issuer was caught out by growing investor discontent
over dwindling new-issue premiums, as well as a broader sell-off
triggered by concerns around President Trump's reforms.
"It was a trade where investors didn't feel we left much on
the table for them," said a syndicate banker involved in the
"Some investors took the view that the level we started with
was pretty close to fair value with a minimal NIC. Some wanted a
higher NIC, so they stayed away. But it got done comfortably."
The deal priced around 12bp wider than where Glencore's 4%
2025 bonds were trading before the new issue was announced.
Another banker on the deal said lots of investors drew "a
line in the sand", dropping out of the book after price guidance
was pulled in 10bp from initial price thoughts they already
"It was something you knew was bound to happen at some
point," he said. "Investors still have cash, but they've bought
a lot of bonds over the last couple of months."
"They are not going to jump through hoops to buy bonds
anymore. If you tighten pricing too much, you're going to be out
of a deal."
Bank of America Merrill Lynch, JP Morgan, Mizuho, Santander
and Standard Chartered were bookrunners on the deal.
Fellow miner Anglo American was meant to come to market
later in the week in euros and US dollars, but the poor
performance of Glencore's deal spoiled those plans.
Anglo is monitoring the market for an entry point but is in
no rush, said bankers on the deal, which will be the company's
first since it was stripped of its high-grade status last year.
Glencore's bond spreads and credit default swaps have
rallied sharply over the past few months, in part because of the
company's commitment to reducing debt.
Its €1bn seven-year bond issued last September - its first
in euros since the sell-off - was six times oversubscribed.
Glencore said towards the end of last year it was on target
to lower its net debt to US$16.5bn-$17.5bn by the end of 2016.
In the previous 18 months, it had already slashed net debt by
The company announced a buyback in December, targeting
several bonds that were part of a similar offering in October,
and has prioritised maintaining a strong Triple B rating.
Moody's upgraded Glencore's rating by one notch to Baa2 on
Friday, putting it two notches above junk status.
"Glencore has reduced debt, strengthened its leverage
profile and re-set its financial framework in 2016," the agency
S&P also rates Glencore two notches above junk, at BBB.
The issuer was downgraded in late 2015 and early 2016 on the
heels of the commodity rout.
Anglo, meanwhile, is rated Ba1/BB+, just below investment
It has also been de-leveraging its balance sheet. In
February 2016, it bought back around €1.6bn-equivalent of
short-dated euro, sterling and US dollar bonds, which cut its
debt pile by US$190m.
The borrower has mandated Citigroup and Morgan Stanley as
joint global coordinators to arrange investor calls.
Citigroup, Credit Suisse, Goldman Sachs, Morgan Stanley and
UBS were hired for the potential US dollar transaction, and
Barclays, BBVA, Citigroup, Morgan Stanley and Santander for the
potential euro-denominated part.
But while prospects are now looking rosier for the mining
industry, some market participants suggested investors were wary
of how much the sector's spreads had tightened.
"A lot of investors think the spread tightening has happened
already," said the second banker on Glencore's deal.
"They want to buy them cheaper."
(Reporting by Will Caiger-Smith; Additional reporting by Laura
Benitez and Natalie Harrison; Edited by Matthew Davies; This
story will appear in the March 25 issue of IFR Magazine)