LONDON • Standard & Poor's has cut its outlook for Glencore to "negative" from "stable" after slashing its price forecasts for metals and amid uncertainties about China's economic outlook.
The Swiss-based mining and commodities firm posted a 29 per cent slump in first-half earnings in August and cut its forecast for earnings from trading, citing tough market conditions.
"Continued weakness and volatility in commodity prices resulting notably from a more uncertain and challenging outlook in China may put additional pressure on operations, credit measures, and free cash flow," Standard & Poor's (S&P) said this week.
Analysts said the move would have no material impact on the company's cost of funding or access to financing but highlighted the pressure Glencore is under to reduce leverage and meet its debt reduction targets.
The firm could lose its prized investment-grade rating if it does not slash its US$30 billion (S$42 billion) debt pile, a report on FT.com said. Glencore, in which GIC has a stake, is rated BBB by S&P, the second-lowest investment grade.
Commodity companies worldwide are being hit by prices which are at a 16-year low while economic growth in China, the biggest user of commodities, expands at the slowest pace in a quarter of a century.
Glencore, headed by billionaire Ivan Glasenberg, is the worst performer this year on Britain's benchmark FTSE 100 index, falling more than 50 per cent. It is seeking to trim spending and sell assets, Bloomberg reported.
Its share price slumped 8 per cent to a record low in London trading on Wednesday, before S&P's statement. The shares rebounded 7.2 per cent by 3.30pm local time as mining companies led gains among global equities. Mr Glasenberg blamed hedge funds and speculators for driving the group's share price lower.
Failure to maintain its current BBB rating may lead to significant costs for Glencore to service its debt and also weaken its ability to raise additional financing, said Mr Jeremy Wrathall, head of global natural resources at Investec in London.
A credit rating downgrade would hurt the trading business most, analysts said.
"They've just been getting it in the neck recently," mining analyst Ben Davis at Liberum Capital in London said on Thursday.
"In the short term, I still think risks of copper are to the upside, but Glencore is very much on thin ice."
Analysts at Credit Suisse Group wrote in a report: "This move to negative will have no material impact on Glencore's access and cost of funding."
A negative outlook typically gives a company 12 months or more for conditions to improve, the bank said.