Glencore expects to cut debt ahead of schedule
Glencore, the resources group hit by falling commodity prices, is to tell investors that it expects to complete its $10.2bn debt reduction plan before the end of 2016, earlier than previously expected.
The Swiss-based company also plans to use a call with investors on Thursday to highlight the progress it is making with a disposal programme and the additional steps it can take if commodity prices remain weak, according to three people familiar with Glencore’s plans.
Glencore has been scrambling to reassure nervous shareholders and creditors that it can cope with its hefty debt load amid a rout in commodity prices.
Its shares have fallen 70 per cent since January and are the worst performers in the FTSE 100 this year. They have now lost more than three-quarters of their value since the company’s 2011 stock market flotation.
Facing pressure from shareholders to strengthen Glencore’s balance sheet, chief executive Ivan Glasenberg unveiled a plan in September to reduce net debt to the “low $20bns” from $30bn. He also quickly raised $2.5bn from a share offering.
Since the plan was announced the price of copper, Glencore’s most important mined commodity alongside thermal coal, has fallen by more than 11 per cent to about $4,500 a tonne. So Mr Glasenberg is now under pressure from investors to complete the deleveraging by the end of June.
“We will be looking for management to use the call on Thursday to not only highlight the options available to reduce debt further but also to offer a comprehensive operating cost-saving plan,” analysts at Macquarie said in a report.
In keeping with more straitened times, this year’s investor day has been pared back to a conference call from Glencore’s head office in Switzerland. It will feature presentations from Mr Glasenberg and chief financial officer Steven Kalmin rather than all of Glencore’s divisional heads.
“It won’t be the full Harlem Globetrotters this year,” one person familiar with the company’s plans said.
Glencore will use the call to emphasise the progress it has made. The company has already raised $900m from selling future silver production. If it completes a second similar deal, Glencore will have raised more than $5bn.
The company will also say that it expects to reach the “low $20bns” net debt target before the end of 2016. Many analysts think the target will be exceeded and it will raise more than the $2bn it has targeted from asset sales.
Glencore is aiming to complete the sale of a minority stake of up to 30 per cent in its agricultural business by the end of June, the people said. An information memorandum was sent out to potential bidders last month. Credit Suisse valued the business at $7bn in a recent report.
There has also been strong interest in two smaller copper mines that Glencore has put up for sale and could be worth more than $1bn.
“These are ‘bite-sized’ assets, not huge mines that need lots of sustaining capital expenditure,” one banker familiar with the projects said.
The size and scale of Glencore’s trading operation marks it out from other miners, and the division, known internally as Marketing, is closely watched because it is the company’s biggest generator of cash. It is expected by investors to make $2.5bn to $2.6bn of earnings before interest this year.
“Glencore has previously indicated that Marketing earnings should recover to $2.7bn to $3.7bn beyond 2016. However, we struggle to see how earnings recover to that level without tightness returning to commodity markets,” Macquarie said.