Glencore seeks to cut debt

Swiss mining giant suspends dividend payments

SWISS mining giant Glencore, hit by collapsing commodities prices, yesterday announced drastic moves to cut its $30billion (R419-billion) debt by about a third, as the slowdown in China wreaked further havoc across markets.

Glencore, which has lost more than 50% of its market value this year, said it planned to raise $2.5-billion (R35-billion) in share sales and suspended dividend payments until further notice.

The miner took the further step of suspending production at mines in Zambia and the Democratic Republic of Congo, as the company reels from what it has previously described as the worst commodities market since the financial crash of 2008-09.

A slowdown in China, the world’s top commodities consumer, has reverberated around the globe, with major producers, including Brazil and Canada, falling into recession.

Concerns over prolonged stalled Chinese growth have slashed iron ore prices by roughly a half, as coal, copper and other commodities have fallen by between 20% and 40%.

In a joint statement, Glencore’s chief executive, Ivan Glasenberg, and chief financial officer, Steven Kalmin, sought to underscore the company’s strong liquidity and other solid indicators, insisting they “remain very positive on the long-term outlook” of the business.

But, they said, the need to stabilise the company’s balance sheet became necessary with stakeholders expressing concern “around the sustainability of our leverage”.

Morgan Stanley and Citigroup would underwrite 78% of the new shares, and senior management and board members would take the remaining 22%, the company said.

Glencore last week saw its largest decline on the London stock exchange since it went public in 2011, but its shares had risen yesterday about 4% in early trading, as analysts offered cautious praise for the moves.

“It’s a reasonably aggressive debt reduction,” National Australia Bank Ltd’s head of credit research, Michael Bush, said.

“Maybe they haven’t done quite enough to remove the negative outlook, but it certainly does reduce the pressure on their rating,” he said, referring to Standard & Poor’s cutting Glencore’s outlook to negative from stable last week.

The company last month reported a $676-million (R9.4- billion) first-half loss, compared with the same period last year.

Analysts have said the slump in commodities prices could last for years, as the rebalancing of China’s economy would likely be a prolonged effort.

There was also no guarantee that its thirst for commodities would recover to previous heights, they said. – AFP