S&P cuts outlook on Glencore´s long-term debt on China woes

Lower metals prices have hit miners´ financials and may continue to hinder their ability to generate cash, the leading international debt ratings agency said, which may lead to higher financing costs for them.

More specifcally, a measure of diversified mining giant Glencore´s ability to cover its financing needs, its ratio of adjusted funds from operations to debt, was now below ratings agency Standard&Poor´s most recent forecasts.

The above metric for the company was 20% as of 30 June 2015, below the "more than 23%" necessary for it to keep its long-term credit rating of BBB.

In a signal to the market of the increased risk, S&P on Thursday lowered its so-called outlook on the firm´s debt rating to 'negative' from 'stable'.

The risk would be particularly acute should 'spot' copper prices remain at the levels prevailing at the time of the agency´s decision.

"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. This is despite some meaningful and continuing offsetting effects from foreign exchange, cost and capital investment adjustments, and Glencore's marketing business."

S&P analysts recently lowered their forecast for copper prices to $2.4 per pound for the rest of 2015 and 2016, versus the then current 'spot' price of 2.31 per pound.

The analysts also estimated that Glencore´s adjusted operating (EBITDA) profits would come in at between $9bn to $10bn for 2015, versus $12.9bn in 2014.

Production was also generally expected to be at the lower end of company guidance, whilst capital expenditures would remain broadly in-line with the firm´s guidance for $6.0bn in 2015 and $4.5bn in 2016.