[miningmx.com] – GLENCORE today unveiled details of a $2.5bn equity placement aimed at cutting indebtedness in which it would place nearly 10% of its issued share capital, most of it through a book-build programme.
The Swiss headquartered group said up to 1,307,794,600 new ordinary shares would be issued – equal to about 9.99% of its share capital – of which 78% would be placed with existing and new institutional shareholders.
The balance of the placement would be bought up by management, including Glencore CEO, Ivan Glasenberg, and the firm’s CFO, Steve Kalman. Glencore is unusual among diversified mining firms for the large stakes management has in the company.
The new shares would be issued from September 21 which means that they would not carry any rights to the 6 US cents/year interim dividend. The book-build would be jointly run by Morgan Stanley and Citi, the company said.
Glencore announced on September 7 that it would 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 included 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 steps are aimed at protecting the company’s credit rating and to provide comfort to some of the firm’s shareholders who have expressed concerns about the robustness of the balance sheet in the event of a protracted slump in metal prices – a “Doomsday Scenario” that Glasenberg believed was unlikely.
Shares in the company slumped as much as 7.7% to 118.1 pence in London trading – lower than the 123.15 pence closing price of September 4, the trading day prior to Glencore’s announcement of the debt-reduction plan, it said. The stock had advanced 8.7% last week, its biggest weekly gain in more than three years.
Investec Securities said it was “a sensible move” as there had been uncertainty regarding the timing of the equity issue.
“Issuing below 10% of the issued capital also likely avoids the need to hold an EGM [Exceptional General Meeting] that could be viewed negatively if it had been necessary and further delayed and complicated the refinancing,” it said.
