Anglo American aims for $1.3bn bond buyback

Miner Anglo American is seeking to buy back up to $1.3bn of its bonds from investors — about half of the short-term debt reduction target that it announced in its turnaround plan this week.

On Thursday, the company published a tender offer for debt coming due in 2016, 2017 and 2018, with a ceiling of $250m on its purchase of the bonds maturing in 2016.

Anglo American’s bonds were downgraded to junk status by the rating agency Moody’s on Monday, the day before the Johannesburg and London-based Company announced an annual loss of $5.5bn and an intention to sell between $3bn and $4bn of assets.

It said that its aim was to cut its net debt, currently about $12bn, to $10bn by the end of 2016.

Like many mining groups, it has been hit hard by falling commodity prices, amid a slowdown in the resource-hungry Chinese economy. Following a decade of investment in new supply, this falling demand has created a commodity glut.

In response, many resources groups have launched plans to reinforce their balance sheets. Glencore, the miner-cum-trader, has raised new equity as well as selling assets and paying down debt while Rio Tinto has ended its ‘progressive dividend’ policy meaning that payouts to shareholders could not be reduced.

Anglo said that its bond buybacks “are being made as part of the company’s ongoing proactive capital management”, and intended to “reduce gross debt and support the company’s debt maturity profile”, as well as to cutting the amount it is paying in interest.

It will pay for the bonds using cash it has on hand and has taken out an additional two-year revolving credit facility to keep its access to liquidity unchanged, according to a person familiar with the plans.

For the bonds maturing after this year, Anglo will pay a price below the face value of the debt, allowing it to book an immediate profit.

“Anglo’s tender was undoubtedly a surprise to the market, particularly following on from this morning’s downgrade to junk by S&P,” said Chris Telfer, a portfolio manager at ECM asset management.

“It’s yet another show of strength in terms of liquidity from a credit issuer whose bonds are trading at distressed levels,” he added, pointing to a bond buyback plan announced in similar circumstances by Deutsche Bank last week.

Anglo was the worst performer in the FTSE 100 index in 2015, suffering much more from the falls in commodity prices than its fellow miners. Its share price fell by a further 7.7 per cent on Thursday, to close at 432p in London.