Why Did Glencore Accelerate Its Debt Reduction Plans?



Glencore to sell 40% of its agriculture business

Glencore (GLNCY) is a metal trading and mining giant. It confirmed its plans to sell 40% of its agriculture commodities business to the Canada Pension Plan Investment Board for $2.5 billion in cash. The deal is expected to close by 2H16. It could be followed by an additional sale of 20% in the future.

Glencore is one of the top agricultural exporters for Australia, Canada, the European Union, and Russia. Glencore’s move is part of the debt reduction plan announced by CEO Ivan Glasenberg in September 2015. To learn more about the debt reduction measures and Glencore’s 2016 earnings estimates, read Glencore Hikes 2016 Earnings Estimate, Accelerates Debt Reduction despite Plunging Commodities.

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Glencore reported a decline of 69% in its annual profit last month. The company announced its target debt of $17 billion. Glencore plans to raise $5 billion by selling its assets. Last year, Glencore’s net debt was as high as $30 billion—the highest among its peers. Last year, Glencore slashed its dividend payments, reduced its capital expenditure, and started selling its assets.

Glencore’s performance 

Glencore fell 5% on April 5 and closed the day at $3.99. Glencore tried but failed to close above the important support level of $4. For the past month, Glencore has been consolidating without proper direction. Glencore closed at a multiyear low of $2.02 on January 13. It consolidated for a week and started its recovery. Currently, Glencore is trading 98% above the January lows. Since the beginning of 2016, Glencore gained 52%. Its peer Freeport-McMoRan (FCX) gained 38%. The Power-Shares DB Base Metals Fund (DBB) and the SPDR S&P Metals & Mining ETF (XME) gained 4.0% and 34.8%, respectively, since the beginning of 2016.

Next, we’ll discuss how Alcoa (AA), Rio Tinto (RIO) and BHP Billiton (BHP) performed on April 5.


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