Commodities giant Glencore has announced a $14.5bn debt reduction program, which includes the potential divestment of its share in various agriculture assets, including infrastructure.
A year after chief executive Ivan Glasenberg was spurned by Rio Tinto chairman Jan du Plessis over potential merger talks, Glencore has been forced to admit its US$30bn debt cannot be justified in the current commodities climate.
The Swiss-based multinational on Monday announced it would undertake a “capital preservation / debt reduction” program with an aggregate value of up to US$10.2bn.
Up to US$2.5bn of that will come from an equity issuance. US$1.6bn will come from the company suspending its 2015 final dividend, and US$800m will come from the suspension of the 2016 interim dividend.
The rest will come from cost cutting, other financial measures, and asset sales.
While it’s thought Glencore’s substantial Australian mining portfolio will be spared thanks to the struggling Australian dollar, the company’s reference to selling off agricultural assets could have some Australian impact.
“Approximately US$2.0 billion [is] to be raised from the sale of assets, including … the minority participation of third party strategic investors in certain of Glencore’s agricultural assets, including infrastructure.”
Glencore has interests in grain farming and handling in NSW, Victoria and South Australia, participating in export operations at a number of sites in South Australia and NSW.
The Swiss company has been left in a tough spot with the market turndown; Glasenberg’s interest in merging with Rio last year was largely perceived as targeting the strong cash flow of Rio’s significant, low-cost iron ore operations in the Pilbara region.
Glasenberg justified the debt reduction move on Monday in a joint statement with Glencore chief financial officer Steven Kalmin.
“…recent stakeholder engagement in response to market speculation around the sustainability of our leverage highlights the desire to strengthen and protect our balance sheet amid the current market uncertainty,” the pair said.
“The measures we have announced today do not affect our core business activities and overall franchise value and have been designed to sensibly accelerate the deleveraging of our balance sheet, maximise future cash flow generation in the current weak commodity price environment and substantially improve our financial and credit metrics.”