Glencore digs deep on debts
MINING heavyweight Glencore has announced drastic measures to slash its debt pile by a third – $ 10.2billion (£ 6.7billion) – by the end of next year to address concerns over the health of its finances in the wake of plunging commodity prices.
The FTSE 100 company bowed to shareholder pressure as it suspended dividend payouts and proposed issuing $ 2.5billion of shares, as well as selling assets and cutting spending.
Glencore had insisted last month that its cashflow was suffi cient to service its near-$ 30billion debt, return cash to investors and support growth.
But last week credit ratings agency Standard & Poor’s reduced its outlook for the company from stable to negative amid uncertainty over the economic outlook of top metals consumer China, with prices for its key products such as copper and coal at their lowest for over six years.
Once dubbed “the millionaire factory” as dozens of traders made paper fortunes when it became London’s biggest fl oat worth nearly $ 60billion in 2011, Glencore’s market value has crashed 55 per cent this year, despite rebounding 8 ¾ p to 131 ¾ p yesterday as the market wel- comed its moves. Last month it posted a first- half loss of $ 676million.
Chief executive Ivan Glasenberg, pictured, and other senior management will take up 22 per cent of the new shares being issued, with the remaining 78 per cent underwritten by US banks Citi and Morgan Stanley. He said: “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 measures we have announced today do not affect our core business activities. We remain very positive on the long- term outlook for our business and this is reinforced by senior management’s commitment to take up 22 per cent of the proposed equity issuance.” Bernstein analyst Paul Gait said: “We believe that bankruptcy risk was clearly investors’ main concern and today’s announcements signifi cantly reduce that risk.”
But broker Investec argued: “We question whether the action being taken is suffi cient in the current environment.”