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Analyzing the Impact of Glencore’s Improved Balance Sheet

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Improved balance sheet

According to a report released by Glencore (GLNCY) on October 6, 2015, the company had upcoming debt maturities of $5.37 billion until June 30, 2016. It represented almost 15% of the company’s capital market notes. Last year, investors were concerned about lower commodity prices and upcoming maturities. Concerns about Glencore’s ability to roll over its near-term maturities triggered a massive sell-off in Glencore’s stock.

Last year, Glencore’s net industrial debt was more than $30 billion. Back then, Glencore announced its intent to cut its “net debt to the low US$ 20s billion by the end of 2016.” The company curtailed its dividend and sold off several of its non-core assets in a bid to strengthen its balance sheet.

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Peer companies

Notably, other miners including Freeport-McMoRan (FCX) and Teck Resources (TCK) also sold assets to raise cash. Diversified miners like BHP Billiton (BHP) and Rio Tinto (RIO) also shelved their progressive dividend policies to conserve cash.

Meanwhile, thanks to Glencore’s debt reduction measures and improved commodity pricing environment, the company has been able to cut its debt more than it planned. According to Glencore, its net debt is expected to be $16.5 billion–$17.5 billion by the end of 2016.

Comfortable leverage ratios

Glencore’s leverage ratios look much more comfortable now compared to last year. Also, the operating environment improved with the steep increase in commodity prices.

In the next part, we’ll explore whether other miners could also follow Glencore and restore their dividends.

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