Glencore reins in debt as commodity price slump persists

Mon Sep 7, 2015 10:11am EDT
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By Olivia Kumwenda-Mtambo

(Reuters) - Mining and trading company Glencore acknowledged on Monday the severity of the global commodity market slump as it suspended dividends and said it would sell assets and new shares to cut heavy debts built up through years of rapid expansion.

The London-listed company came under pressure to cut its net debt of $30 billion, one of the largest in the industry, as prices for its key products, copper and coal, sank to more than six-year lows.

Despite the rout in commodity prices, Glencore had said only last month that its cashflow was "comfortable" to service the debt, return cash to shareholders and support growth.

The market did not share this view, especially after Swiss-based Glencore lowered its earnings forecast for its trading division, an unusual step given the company's track record for winning bets on trends in raw material prices.

Glencore's shares tumbled last week, leaving them down 59 percent this year and adding to pressure on the team around Chief Executive Ivan Glasenberg, architect of its transformation from low-profile trading house to global commodities giant.

Glencore said on Monday it would cut net debt by a third by the end of 2016. It will sell assets and raise $2.5 billion in a share sale, with its billionaire directors diverting part of their wealth back into the business.

Shares in the company were up nearly 7 percent at 131.4 pence by 1254 GMT, having fallen almost 60 percent this year to a record low, a worse performance than rival miners like BHP Billiton and Rio Tinto.

In a sign of how pessimistic the market has become over the commodities outlook, most analysts praised Glencore's decision to secure its balance sheet. Glasenberg said it followed "recent stakeholder engagement" - suggesting the share sale and other measures had been called for by shareholders.   Continued...

The logo of Glencore is pictured in front of the company's headquarters in the Swiss town of Baar, November 13, 2012. REUTERS/Michael Buholzer