BAAR, SWITZERLAND — Glencore Plc is currently working on a debt reduction program that it previously announced in September 2015. The plan was to reduce the company’s $30 billion debt by $10 billion by selling down its agricultural segment. In December 2015, the company said it already had reduced debt by $8.7 billion. The company has revised its net debt reduction target again to between $16.5 billion to $17.5 billion by the end of 2016.
|Ivan Glasenberg, chief executive officer at Glencore.|
During an Aug. 24 conference call with analysts to discuss first-half results, Ivan Glasenberg, chief executive officer at Glencore, explained the goal of selling stakes in the company’s ag segment but also how to use it to strengthen it.
“But the real reason, and we've always said it even before we were on the debt reduction plan, that we believe consolidation of this industry can take place; and we believed our balance sheet on our own would be difficult to really grow significantly,” Glasenberg said. “And it was a good chance to bring in a partner; a strong, solid partner, who would have the financial muscle that allowed us to grow the business.”
In June, Glencore announced it had entered into a definitive agreement with British Columbia Investment Management Corporation for the purchase of a 9.99% stake in Glencore Agricultural Products. Another agreement was announced in April to sell a 40% stake of the company’s agriculture segment to Canada Pension Plan Investment Board — it is expected to close in the second half of 2016.
“So having a 50/50 type partner there, we got leverage we can put in the company as well,” Glasenberg said. “But together with a partner contributing their part of the equity and us contributing our part of the equity, we can look at fairly substantial-sized assets, and look to consolidate industry further. Would we want to sell that 50% or dilute? Right now, we're very happy with 50%; no reason to dilute. And we'll just see what opportunities come. And how we've got to look at it, and whether you've got to dilute in the process or not, we will be open to any type opportunities.”
Glasneberg said he doesn’t see any assets currently on the market that Glencore would be interested in but the company is always looking.
“We keep seeing what comes on the market for sale, and we'll keep monitoring what's out there,” Glasenberg said. “But we don't see anything right now that we are seriously looking at.”
On Aug. 24 Glencore said that it sustained a loss of $369 million in the first half of 2016, which compared with a loss of $676 million in the same period of last year. Its overall adjusted EBITDA for the first half of 2016 was $4.02 billion, down 13% from $4.611 billion in the same period of last year. The decrease was due to lower commodity prices. The company said it continues to mitigate reduced industrial margin challenges through its focus on operational efficiencies, which has significantly cushioned the net impact from lower commodity prices (negative)/stronger U.S. dollar (positive).
“Regarding other assets in the sector, or growing the marketing with a better balance sheet … we've always said we've got the liquidity, we can do it,” Glasenberg said. “And whatever we want — where we wanted to grow we were able to grow, even before when the balance sheet was being run at a 3:1 net debt-to-EBITDA ratio. Today, at 2:1, yes, it does give us a little bit more flexibility, but it's never really hindered our marketing.”