[miningmx.com] – SWISS headquartered mining and trading group, Glencore, is to issue equity worth up to $2.5bn in an effort to reduce net debt to “the low $20s bn” by the end of 2016.
The strategy also includes suspending the final and interim dividend in its 2015 and 2016 financial years respectively that will save the company a combined $2.4bn as well as a $2bn sale of assets.
All in all, Glencore hopes to cut cash outflow through these measures, as well as a $1.5bn reduction in working capital, and a further $1bn in savings, by some $10.2bn. Glencore had previously targeted net debt of $27bn by the end of 2016.
The move comes days after ratings agency, Standard & Poor’s, revised its outlook of Glencore from stable to negative and said it should seek to cut its $30bn plus net debt or risk losing its investment grade credit rating.
“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,” said Ivan Glasenberg, CEO of Glencore.
He added the steps, which also include the suspension of some 400,000 tonnes of copper production from its African Copper operations, would maximise future cash flow generation and improve the firm’s financial and credit metrics “… in the event of
a prolonged weaker pricing environment”.
Roughly 78% of the proposed equity issuance had been underwritten by Citi and Morgan Stanley whilst Glencore’s senior management, including Glasenberg himself, will take up the remaining 22% of the proposed issuance.
“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% of the proposed equity issuance,” said Glasenberg.
Glencore said that as part of the $10.2bn debt reduction, between $500m to $800m would be generated from a reduction in long-term loans and advances made by Glencore which stood at $4bn as of June 30.
In addition, the group’s ‘industrial’ capital expenditure would be cut by $500m to $1bn to the end of 2016. This is further to stated plans in August at its interim results announcement in which 2015 capex would be cut by up to $800m to $6bn.
Investec Securities described the steps as “drastic”, but questioned whether the action being taken “…is sufficient in the current environment while it certainly undermines any yield attraction for investors, perhaps even beyond the outlined cuts”.
