Glencore Sells Agriculture Unit Stake as it Seeks to Pay Down Debt

GLENCORE has taken another step towards paying down its vast debt after raising $2.5bn (pounds 1.8bn) from the sale of a stake in its agriculture business.

Published: 07th April 2016 08:08 AM  |   Last Updated: 07th April 2016 08:08 AM   |  A+A-

GLENCORE has taken another step towards paying down its vast debt after raising $2.5bn (pounds 1.8bn) from the sale of a stake in its agriculture business.

The Canada Pension Plan Investment Board (CPPIB) will buy a 40pc slice of Glencore Agri, which produces and ships agriculture commodities such as grains, oilseeds, rice and sugar.

Glencore will use the proceeds to help pay off its net debt, which stood at $25.9bn (pounds 18bn) in December. The FTSE 100 mining group wants to reduce that figure to $17-18bn by the end of this year and is looking to raise

$4-5bn from disposals. It also plans to sell parts of its precious metals business and infrastructure such as a mining railway in Australia.

Shares in the miner and commodities trader rose initially as traders absorbed the deal, which values Glencore Agri at $6.25bn, slightly below expectations. However, they ended the day down 1.2pc and among the worst performing stocks in the FTSE 100.

"We are pleased to be partnering with CPPIB as we embark on the next stage of the development of Glencore Agri," said Ivan Glasenberg, Glencore chief executive. "CPPIB have a proven track record in the sector and share our vision for the future growth of the business."

CPPIB, the vast pension fund that has $282bn invested in assets around the world, including $15bn in the UK, will take two seats on the board of the agriculture business when the deal completes.

Mark Jenkins, global head of private investments at CPPIB, said the deal was an "excellent fit for a long-term investor like CPPIB".

Last year Glencore Agri's earnings before interest and tax almost halved to $524m (pounds 374m) due to weaker prices in agricultural commodities.

Glencore put a minority stake in the unit up for sale in September. Its deal could ease the pressure from ratings agencies, which have downgraded the miner and commodities trader in recent months. Moody's declared the deal "cash positive", adding: "Bringing a strong financial co-investor into its agricultural business should also bolster its long-term ability to grow."

However, Jeremy Wrathall, analyst at Investec, said: "It's not a great deal. We believe the market was expecting much more than this. This was the sale that could have moved the dial, as other assets may take longer to sell."

Analysts at JP Morgan Cazenove said: "We view this disposal as a decent, but not spectacular, outcome."

Having been one of the worst-performing stocks in the FTSE 100 in 2015, Glencore's share price has rallied by 51pc so far this year, amid a general recovery in the mining sector.

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