RBC highlights Glencore basis plays and spread pick-ups

In credit research today, Royal Bank of Canada maintains an outperform recommendation on Glencore International’s cash bonds. Strategists also highlight an attractive basis to credit default swaps (153/161bp, and spread pick-ups from switching from Xstrata in cash or CDS (122/128bp).

RBC notes there is an issuer-redemption-at-par option from February 2011 in Glencore’s senior $700 million 8% perpetual. This could be a pre-IPO buyback candidate to simplify the capital structure and to lose the high coupon. Glencore has confirmed plans for a new euro issue, which strategists expect will prove popular assuming pricing is in line with current new issue premiums. There is the usual risk of short-term selling pressure in a similar secondary maturity.