Glencore plans to sell assets and shares and shelve its dividend to help cut a $30 billion debt pile by about a third following the rout in commodity markets.
The Swiss producer and trader of raw materials, which last week posted its biggest weekly drop in London since going public in 2011, plans to sell about $2.5 billion in new shares and assets worth as much as $2 billion.
It also will suspend dividend payments as it seeks to reduce its net debt by about $10.2 billion. Glencore shares rose as much as 13 per cent, a record intraday gain.
The debt-reduction plan represents a significant about-face for Glencore after chief financial officer Steve Kalmin said less than three weeks ago that the company could “walk and chew gum,” meaning it could protect its all-important credit rating and pay its dividend at the same time.
The change of heart was prompted as investors expressed concerns about the balance after the company reported a 56 per cent drop in first-half profit last month.
“It’s clear people want us to get the balance sheet in line with potentially lower commodity prices,” chief executive officer Ivan Glasenberg said , commenting on meetings with investors. “This strengthens the balance sheet even if commodity prices go down further.”
Glencore has lost more than half its market value this year, and along with BHP Billiton and Rio Tinto has seen profits slump as commodity prices plunged to touch a 16- year low last month.
Standard and Poor’s cut Glencore’s outlook to negative from stable last week, saying weaker growth in China will weigh on copper and aluminum prices. “This significantly improves the balance sheet of the company, it comfortably places Glencore in investment grade territory by rating agencies under most commodity scenarios,” Citigroup analyst Heath Jansen wrote in a note Monday. It “gives the company flexibility to weather any downcycle and is likely to remove the markets concern on the downside,” he said.
Glencore stock climbed 5.3 per cent to 129.70 pence ($1.98) by early trading in London, paring this year’s decline to 56 per cent.
The shares slumped 17 per cent last week. Bank of America Corp. raised its rating on the company to neutral after the plan was announced.
The cost of insuring Glencore’s senior debt against default fell. Credit-default swaps dropped to 342 basis points on Monday, from a more than three-year high of 445 basis points, according to data provider CMA.
“We’ve spoken to some of our major shareholders and we have their full support” regarding a share sale, Mr Glasenberg said in a phone interview.
The company may consider selling a minority stake in its agriculture unit as part of the plan, Mr Kalmin said .
Morgan Stanley and Citigroup will underwrite 78 per cent of the proposed share sale. Mr Glasenberg, Mr Kalmin and several board members will take up the remaining 22 per cent, the company said in a statement on Monday.
Senior executives won’t dilute their holdings in the sale, Mr Glasenberg said. Glencore plans to save $1.6 billion by suspending its 2015 final dividend and a further $800 million by suspending its 2016 interim dividend.
Net debt was $29.6 billion as of June 30th. It’s rated at BBB, the second-lowest investment grade, by S&P.
- Bloomberg
