Anglo American readies bond market return

By Laura Benitez

LONDON, March 21 (IFR) - Anglo American (LSE: AAL.L - news) is poised to sell its first public bond since it was stripped of its investment-grade status last year following the shock capitulation of global commodity prices.

The mining company, rated Ba1/BB+, is expected to sell a US dollar and/or euro-denominated bond on Wednesday, after holding investor calls this week.

It is actually seeking to reduce its net debt and will also conduct a liability management exercise to buy back some of its euro, sterling and US dollar notes.

Anglo American's euro bonds lost as much as 48 points when its relegation to junk in February 2016 triggered a wave of forced selling from investment-grade accounts.

But some investors say they are ready to rebuild a position in anticipation that the company will soon regain its investment-grade status.

"We like the credit, but it's a tricky one to pinpoint because it's looking less like high yield and more like IG again," one investor said.

"We've been gradually building a position in our HY portfolio and are ready to take on more for our IG (Frankfurt: A0EARV - news) /crossover bucket on expectations of it being upgraded to investment-grade by year-end," the investor said.

The company was upgraded by Moody's to Ba1 with positive outlook in earlier this month, from Ba2, to reflect its improving credit profile and accelerated debt reduction, the agency said.

"Anglo's ability to affirm its financial policies, including the dividend policy, will play a key part in sustaining the improved financial profile and higher ratings," said Elena Nadtotchi, senior credit officer and the lead analyst for Anglo at Moody's, earlier this month.

S&P also has a positive outlook on its BB+ rating.

COMMODITY COMEBACK

Anglo American paper has recovered strongly over the last year following a rebound in global mining prices. Its €750m 3.25% Apr 2023 bond is bid at a cash price of 107.06 compared with lows of 59 in January 2016, according to Tradeweb.

A lead banker said this recovery boosted the rationale for them to return to the market.

"We've seen a bigger bid for the commodity names lately, so Anglo saw the LM exercise as a great way to bring investors up to date on their funding strategy."

Last September, Glencore (Frankfurt: 8GC.F - news) attracted €5.8bn of orders, its biggest ever book, for its first euro deal after concerns in September 2015 over the company's financial health caused its bonds and stock to plummet.

The commodity trader is selling a 10-year bond in the US dollar market on Tuesday, its first US dollar issue in two years, according to IFR data.

Investors and bankers working on the Anglo American deal are looking at Glencore, rated Baa3/BBB (Moody's/S&P), as a pricing comparable.

Glencore's 1.875% Sept 2023 paper is bid at 115bp over mid-swaps, versus Anglo's Apr 2023s, bid at plus 156bp.

"There's a good 40bp pick up in buying Anglo versus Glencore, which you would partly expect because the latter is better rated," the investor said.

"But if Anglo is on that IG trajectory, and we think it is, you will soon see a further spread compression, so it could be a good buying opportunity."

Anglo has been de-leveraging its balance sheet since early 2016. In February of that year, 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 (NYSE: C - news) and Morgan Stanley (Xetra: 885836 - news) as joint global coordinators to arrange the investor calls.

Citigroup, Credit Suisse (IOB: 0QP5.IL - news) , Goldman, Sachs, Morgan Stanley, and UBS (LSE: 0QNR.L - news) were hired for the potential US dollar transaction, and Barclays (LSE: BARC.L - news) , BBVA (LSE: 931474.L - news) , Citigroup, Morgan Stanley, Santander for the potential euro-denominated part.

Any US dollar notes will be five- to 10-years, while any euro portion will be an intermediate tenor and a single tranche transaction. (Reporting By Laura Benitez, editing by Sudip Roy and Alex Chambers)