Glencore first announced it was seeking investors in its agriculture unit in September 2015, as part of a plan to reduce its $30 billion debt by $10 billion. In December 2015, the company said it had already reduced debt by $8.7 billion and had revised its debt reduction target to $13 billion.
The transaction values 100% of the equity in Glencore Agri at $6.25 billion, after taking into account indebtedness that the company is anticipated to have at closing. This transaction is in addition to the sale of a 40% stake in Glencore Agri to Canada Pension Plan Investment Board for $2.5 billion, which was announced on April 6. Glencore will then hold a 50.01% stake and the company will continue to be run by the existing management team.
British Columbia Investment Management Corporation will be able to appoint one director to the board of Glencore Agri and will be granted certain reserved matter rights consistent with its shareholding.
"We are pleased to welcome another long-term partner into Glencore Agri who shares our vision to capture the significant opportunities we believe will emerge for Glencore Agri over coming years,” said Ivan Glasenberg, chief executive officer of Glencore. “These transactions highlight the superior value of Glencore Agri, with its advantaged asset footprint and business model, relative to its closest peers. We are very excited that Glencore, as the largest shareholder in the business, will benefit from continued growth of the Business with our new partners."
It is also anticipated that at closing of this transaction all of Glencore Agri's debt (which currently totals approximately $3.6 billion and most of which is currently funded by Glencore) will be assumed by Glencore Agri. It is expected that this financing, currently comprising around $0.6 billion of long term debt and $3 billion of short term debt for financing of working capital, will ultimately be funded by Glencore Agri without recourse to Glencore.
This transaction is subject to customary regulatory approvals and closing conditions and is expected to close during the second half of 2016.
The $3.124 billion of cash proceeds from these two transactions will be used by Glencore to reduce net indebtedness. As a result of the two Glencore Agri transactions and the sale of Komarovskoe for $100 million, this year Glencore has entered into definitive agreements on asset disposals totaling $3.2 billion of its $4-$5 billion target for 2016.
"Our investment in Glencore Agri provides an excellent opportunity for British Columbia Investment Management Corporation to increase and diversify our exposure within the agricultural space, a sector we view as critical to supporting rising levels of global prosperity,” said Lincoln Webb, senior vice-president, Infrastructure & Renewable Resources of British Columbia Investment Management Corporation. “Investing with strong partners and alongside a world-class management team, we believe our long-term investment views and global perspectives align well with the further growth and development of a leading agricultural platform."
With a global portfolio of more than C$123.6 billion, British Columbia Investment is one of Canada's largest institutional investors within the capital markets. It invests on behalf of public sector clients in British Columbia, Canada, and helps finance the retirement benefits of more than 526,000 plan members, as well as the insurance and benefit funds that cover over 2.2 million workers in British Columbia.
Barclays, Citi and Credit Suisse acted as joint financial advisers to Glencore. Linklaters LLP provided legal advice to Glencore.