Commodity giant Glencore may have to take steps to trim its US$31 billion debt burden

Commodity supplier Glencore may take further steps to alleviate the strain of a US$31 billion (S$43.6 billion) debt pile to protect its credit rating.
Commodity supplier Glencore may take further steps to alleviate the strain of a US$31 billion (S$43.6 billion) debt pile to protect its credit rating. PHOTO: BLOOMBERG

LONDON - Glencore, the world's largest listed commodity supplier, may take further steps to alleviate the strain of a US$31 billion debt pile and protect its credit rating amid a rout in prices.

After trimming this year's spending plan as much as US$800 million and selling US$290 million of mines, the company may announce additional measures to shore up its balance sheet alongside earnings on Aug 19, according to Citigroup and Barclays. The company needs to cut net debt by almost half to US$16 billion by the end of next year to retain its credit rating, which may lead to the sacrifice of 2016 dividends, said JPMorgan Chase analysts. Commodity companies' earnings worldwide are under pressure because of 13-year-low prices, while industrywide dollar-bond borrowing costs have jumped to the highest in five years.

Glencore, in which GIC has a stake is rated BBB at Standard & Poor's, the second-lowest investment grade.

It had already said on Friday it had sold stakes in three mines it inherited through its Xstrata takeover for about US$290 million. On Thursday, Glencore said it would reduce its capex plans as copper and nickel trade near six-year lows, hit by a supply glut and slowing Chinese demand. The company said it had sold its interests in the Tampakan copper mine in the Philippines, the Falcondo nickel mine in the Dominican Republic and the Sipilou nickel mine in Ivory Coast.

"If Glencore doesn't do anything to reduce leverage, the ratings will be at risk," said Max Mihm, a portfolio manager at Union Investment, which holds Glencore bonds among its about 250 billion euros of assets. "They are dependent on bank financing, so they have to do something."

A spokesman for Baar, Switzerland-based Glencore declined to comment on potential measures. About 54 percent of Glencore's outstanding bonds are denominated in dollars, according to data compiled by Bloomberg.

Glencore is the worst performer on the FTSE 100 Index this year, plunging 42 percent amid the commodities rout. It is 67 percent below the price in its US$10 billion initial public offering four years ago. The company had US$31 billion of net borrowings and US$53 billion of gross debt at the end of last year, according to its annual report.

The trader raised a one-year US$8.5 billion revolving credit facility from a group of banks in May that it can extend for another 12 months through a so-called term-out option, according to data compiled by Bloomberg. It has US$6.3 billion of bonds maturing by the end of 2016, the data show.

If commodity prices deteriorate further the company "could be looking at ratings downgrades, cutting dividends or, further down the line, even potential rights issues."

BLOOMBERG, REUTERS