BNP Paribas makes 'add' recommendation on Glencore

In credit research published today, BNP Paribas maintains a ‘stable credit trend’ and ‘add recommendation’ on Glencore. Although strategists foresee more volatility / underperformance of the credit in the coming weeks, they hold a constructive view in the medium term, as the trading/mining environment remains broadly favourable and some positive catalysts could lead to re-pricing. These include a potential IPO, although BNP still sees that as unlikely.

In euro cash, Glencore offers among the best yields for an investment grade credit and a sufficient buffer to weather potential mark-to-market risk, say a strategists. BNP’s top pick is the October 2013 note, with a lower cash price and duration than the 2015, yet still offering a decent premium at mid-swaps + 250bp.

BNP also foresees some further outperformance of Glencore five-year credit default swaps against the HiVol index and other non-financial triple-B peers.

Following the signing of its new three-year revolving facility back in May, strategists note Glencore’s CDS curve turned hump-shaped, as banks were actively hedging with the three-year tenor. Over time, the bank expects this situation to reverse and the 3-5 year part of the curve to re-steepen.