Mayo Schmidt, president and CEO of ViterraJOHN WOODS
Credit rating agencies are starting to weigh in on Glencore International PLC's deal to acquire Viterra Inc. for $6.1-billion.
Standard & Poor's sounds upbeat about the deal, noting on Monday that it'll "be moderately positive for Glencore's business risk profile as it should lead to an improvement of its market position in the agricultural commodities marketing business, increase diversification, and boost the proportion of less cyclical and capital intensive marketing profits in Glencore's EBITDA."
But that contrasts with what Moody's had to say last week. Moody's did a 180 on its view on Glencore – and it seems largely related to the Viterra deal. Previously, Moody's had put Glencore's credit rating on review for a possible upgrade, but switched last week to something called "direction uncertain," which sounds a touch gloomy.
To be sure, Glencore's proposed merger with Xstrata PLC was what put the company on Moody's radar in the first place. That deal could still be blocked by a minority of Xstrata's shareholders.
The concern is that if the Xstrata deal is blocked and the Viterra deal goes through, "Glencore's ratings would be subject to negative pressure, as the fully debt funded acquisition of Viterra would weaken Glencore's credit metrics to levels that are no longer aligned with Moody's guidance for a Baa2 rating," Moody's said in its March 21 update.
On the other hand, if the Xstrata deal goes through, then Moody's would consider upgrading Glencore's credit rating. FT Alphaville has a detailed blog post on some of the broader credit issues weighing on Glencore, including the observation that the Swiss-based company nearly suffered a debt-induced catastrophe during the 2008 financial crisis.
Meanwhile, investors don't seem too worried that Glencore's deal to acquire Viterra is in any sort of trouble: Viterra shares in Toronto traded at $15.93 on Monday – which is about 2 per cent below the $16.25 takeover price.