The Strategist

Glencore to Reduce Debt by $ 10.2 Billion

09/07/2015 - 15:05

The world's leading mining and trading company Glencore Plc announced on Monday an ambitious plan to reduce its debt by a third. Termination of payment of dividends, the additional issue of $ 2.5 billion and the sale of assets of $ 2 billion should reduce the debt by approximately $ 10.2 billion.
The world's leading raw material producers and traders - Swiss Glencore Plc - published on Monday a plan to reduce one-third of its debt, which is now estimated at $ 30 billion.

Glencore stops paying dividends for an indefinite period, carries an additional issue of shares at $ 2.5 billion, and gets rid of some of its assets by $ 2 billion under the plan. All this taken together should lead to a reduction in debt by about a third - to $ 10.2 billion. The company explains its plans by the desire to strengthen its position amid falling commodity prices.

- It is obvious that people want us to somehow bring our accounts into line with the potentially more lower commodity prices - Bloomberg quoted Ivan Glasenberg, the company’s chief executive.

- Current measures are strengthening our position even in the event of a further decline in prices.
As the agency notes with the words of Mr. Glasenberg, the Monday's decision was taken in consultation with the company's shareholders.

It should be noted that the decline in commodity prices (in August they reached a 16-year low) hit on Glencore, as well as other market giants, such as BHP Billiton and Rio Tinto. The capitalization of the Swiss company from the beginning of the year fell by more than half, and last week a rating agency S&P changed its outlook on the company's shares on the negative. As a result, the largest drop in prices in London - 17% - was recorded since the company's IPO. Monday's news, in turn, has led to an increase in stocks by 12%, effectively recouping Friday's drop.

Citigroup and Morgan Stanley provides guarantees to place 78% of the shares to be issued in the upcoming additional share issue. Mr. Glasenberg and Chief Financial Officer Steve Kalmin are reacquiring the remaining 22% themselves. As for the sale of assets, then, according to Mr. Kalmin, it would be referred to selling a minority stake in the agricultural division of the company.

As part of measures to stabilize the situation in the company and on the market, Glencore announced 18 months-termination of copper mining in Katanga (Democratic Republic of the Congo) and Mopani (Zambia). This way, the company would siphon off about 400 thousand tonnes of goods from the market.

- Glencore decision significantly improves the company's accounting department, which will now be feeling quite comfortable in the area of investment grade of leading rating agencies with almost all the possible scenarios of developments in the market. The steps taken give us more flexibility, - the commentary of Citigroup analyst Heath Jansen. And, according to National Australia Bank’s expert Michael Bush, continuation of the current trends in the market may make other mining companies to follow the example of Glencore.