Glencore in bid to slash net debt

ZURICH: Glencore Plc, the Swiss commodities trader, will seek to cut its net debt to as low as US$18 billion by the end of next year, accelerating a programme aimed at reducing its liabilities as raw materials prices plunge.

Its net debt totalled $30 billion at the end of June. It also said it will trim capital spending next year to $3.8 billion from an earlier estimate of $5 billion.

The world’s biggest miners are reeling from a slump in commodities prices that have cut profits and stretched balance sheets loaded with debt during a decadelong bull run. This week Anglo American Plc pledged to dramatically overhaul its business and Freeport-McMoRan extended spending and production cutbacks to try to ride out the worst raw materials rout since the global financial crisis in 2008.

“Glencore is well placed to continue to be cash-generative in the current environment – and at even lower prices,” said chief executive Ivan Glasenberg.

With no sign of a turnaround in commodities, Mr Glasenberg is under pressure to cut Glencore’s borrowing, the biggest in the industry. The producer has already scrapped its dividend, raised $2.5 billion in a share sale, signed a $900-million silver streaming deal and started talks on selling a stake in its agricultural unit.

Glencore shares have dropped 72% in London this year, giving the company a market value of about $18 billion. It’s the second-worst performer in Britain’s benchmark stock index this year.

Glencore said in October that it was taking action to strengthen its balance sheet and plans to protect the credit rating, which, if lowered by one notch, would result in a “modest” increase in funding costs. The company believes that asset sales and other measures could lead Standard & Poor’s to upgrade its BBB rating by one level in the long term.

The original debt reduction target won’t be enough to stave off a downgrade at current prices, Macquarie Group analyst Alon Olsha said.

“Glencore needs to be aggressive next week if it is to shore up investor confidence in the face of relentless commodity market pressure,” he wrote in a note. “More than any other miner, we think Glencore has the capacity to surprise, and we do not expect management to pass up the opportunity to do so.”