Glencore Selling Bonds in Europe Amid Best Returns in Ten Weeks

Glencore Xstrata Plc is marketing euro-denominated bonds as investment-grade company debt in Europe hands investors the best weekly returns since July.

The global commodity trader and metals producer run by billionaire Ivan Glasenberg is issuing 750 million euros ($1 billion) of seven-year notes in its first debt sale in the currency since November, according to data compiled by Bloomberg. High-grade corporate bonds returned an average 0.4 percent this week, the most since the week ended July 12, Bloomberg index data show.

Credit markets rallied after the Federal Reserve unexpectedly refrained from slowing the pace of its monthly bond purchases. The average yield investors demand to hold investment-grade notes in euros dropped nine basis points this week to a three-week low of 1.98 percent, while yields on junk-rated securities fell 16 basis points to 4.79 percent, the lowest in a month, Bloomberg data show.

“As the Fed postponed the decision to taper, markets are relieved and investors are more willing to add risk,” said Sipke Moes, a portfolio manager at Kempen Capital Management in Amsterdam. “This environment is generally positive for companies to issue bonds and hence we’re seeing an increase in sales.”

Glencore is selling its notes through its Glencore Finance Europe SA unit to yield 165 basis points more than swaps, according to a person familiar with the matter. The proceeds will be used for general corporate purposes, the person said.

‘Risk-On Environment’

The Baar, Switzerland-based company raised this month its estimate of savings from the takeover of Xstrata Plc, which completed in May, to at least four times the initial forecast. Glencore has 850 million euros of 5.25 percent bonds maturing next month, Bloomberg data show.

“The synergies between Glencore and Xstrata post-merger look better than was expected,” said Leonardo Basile, a portfolio manager at UBI Pramerica SGR SpA in Milan. “The new issue premium on Glencore’s deal doesn’t seem very high but I expect that in the current risk-on market environment this new issue will perform decently.”

Today’s bond sale is “prudent financial management,” said Charles Watenphul, a Baar-based spokesman for Glencore.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.

In the high-yield market, Lafarge SA, the world’s biggest cement maker, is selling 750 million euros of seven-year bonds to yield 305 basis points more than swaps, according to a person familiar with the deal. It’s the first sale of notes in euros in more than a year for the Paris-based company, which is rated Ba1 or one level below investment grade by Moody’s Investors Service.

Hapag-Lloyd AG, a junk-rated German container shipping line, has increased the size of its five-year bonds to 250 million euros from 200 million euros, according to a person with knowledge of the transaction. The securities, which may price today, will yield 7.75 percent to 8 percent. It’s the Hamburg-based company’s first bond sale in three years, Bloomberg data show.

Before it's here, it's on the Bloomberg Terminal.