BAAR, SWITZERLAND — In a move to reduce its $30 billion debt by $10 billion, Glencore said on Sept. 7 it is considering a sell down of its agricultural unit.
In a release, Glencore said approximately $2 billion could be raised from the sale of assets, including, but not limited to, proposed precious metals streaming transactions and the minority participation of third-party strategic investors in certain parts of Glencore’s agriculture assets, including infrastructure.
Glencore Chief Financial Officer Steven Kalmin told Bloomberg News that the move could entail taking on investors in its agricultural infrastructure assets including its ports, or the sale of a minority stake in the entire agricultural unit. He noted that there has been increased interest in food commodities from Japanese and Chinese sovereign wealth funds. Mitsubishi Corp. announced in July the acquisition of 20% stake in commodity trader, Olam International and last year, COFCO Corp., China’s largest food company, acquired controlling interests in Noble Group and Nidera BV.
Just five months ago, Tony Hayward, Glencore’s chairman, said the company was considering expansion of its agricultural business. Glencore expanded its presence in the agriculture industry with the purchase of Canadian grain trader Viterra, Inc. in 2012 for $4.6 million.
But agricultural production has been on a downward trend, and profits took a tumble in the first half of 2015. Glencore reported a 46% decrease in agricultural profits for the first half of the year, and said it was a challenging time for commodities. Financial markets continued to fixate on the risks to global growth, against a backdrop of a stronger U.S. dollar. Commodity prices are now at levels not seen since the financial crisis of 2008-09 and various markets appear increasingly driven by perceptions and technical factors rather than reality or fundamentals.
On Aug. 13, Glencore reported that its Agriculture segment produced 4.5 million tonnes in the first half of 2015, compared with 4.8 million tonnes a year earlier. Crush volumes were in line with the prior period, but wheat milling was down 7% to 486 million tonnes. Rice milling production was down 28% to 91 million tonnes.
Switzerland-based Glencore is one of the world’s two biggest wheat traders, handling 18% of the world’s seaborne trade, and is one of the top three agricultural exporters in Russia, Canada, Australia, and the E.U. The group is vying for a position among the world’s biggest ‘ABCD’ commodity traders – Archer Daniels Midland Co., Bunge Ltd, Cargill Inc., and Louis Dreyfus Commodities BV.