Glencore Takes Drastic Steps to Shore up Finances

GLENCORE: Glencore has unveiled bold plans to restore confidence among investors by slashing more than $10bn (pounds 6.5bn) from its debt pile in a move that sent the mining titan's shares surging.

Ivan Glasenberg, its chief executive, said that cutting net debt would "remove any doubt" among investors that the company's balance sheet could withstand a further slump in commodity markets.

The Swiss-based company now plans to raise $1.6bn by suspending its final dividend payment for 2015 and has launched a capital-raising drive worth $2.5bn alongside other measures intended to cut net borrowing from around $30bn to around $20bn by the end of 2016.

Investment banks Morgan Stanley and Citi have agreed to underwrite 78pc of the raising, with the balance taken up by Glencore's senior management, including Mr Glasenberg. Shares in Glencore rose in London by 12pc at one stage yesterday, before closing up just over 7pc at 131.8p each.

In addition to the fundraising, the FTSE 100 giant said it would suspend its interim dividend in 2016 to save $800m, cut working capital by $1.5bn and raise a further $2bn from the sale of additional assets including a stake in an agriculture business. In all, the actions will cut more than $10bn from the company's burgeoning debts.

Before yesterday's surprise statement, Glencore's shares had been hit hard by concerns over its ability to manage its $29.5bn debts amid a slide in major commodities, affecting both its mining and trading divisions.

The price of copper has fallen by 50pc over the last four years and Glencore, like others, is being forced to adapt to a more uncertain trading environment especially in China.

But the decision to suspend its dividend and tap investors for more cash can be interpreted as something of a "volte face" by the company, which had insisted it was comfortable with its levels of debt and the strength of its balance sheet until the end of last month.

Analysts at Liberum called the move "a complete 180-degree turn" from the "bullish outlook" at the company's interim results two and a half weeks ago.

At that time, Mr Glasenberg disclosed that the company's net income had fallen to $882m, less than half the $2.01bn of a year earlier.

Analysts broadly welcomed yesterday's move to address market concerns, with some predicting that others in the sector could soon follow its example by shoring up their balance sheets.

"These are big and achievable steps by management," said Barclays in a note to investors. "They are clearly designed so that the company can operate in current or materially worse market conditions."

As part of the plan Glencore also said it would significantly trim its copper production. In Africa, the company plans to suspend operations at two major mines in the Democratic Republic of Congo and Zambia, which account for around 400,000 tonnes of supply between them.

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