Glencore sells agriculture unit stake to Canada pension fund for $3.4b

Glencore has to cut back its debt load of about US$30 billion (S$41 billion) in the wake of tumbling commodity prices.
Glencore has to cut back its debt load of about US$30 billion (S$41 billion) in the wake of tumbling commodity prices.PHOTO: AGENCE FRANCE-PRESSE

ZURICH • Swiss commodities giant Glencore announced yesterday that it was selling nearly half of its vast agriculture business to a Canadian pension fund for US$2.5 billion (S$3.4 billion) in cash.

Canada Pension Plan Investment Board (CPPIB) will acquire a 40 per cent stake in Glencore's agriculture division which handles wheat, corn, barley, biofuels, cotton and sugar, according to a statement.

The sale is part of a debt-cutting programme Glencore chief executive Ivan Glasenberg unveiled last September in a move to mitigate concern about the company's capacity to pay down about US$30 billion of debt as commodity prices tumbled.

Canada Pension fended off other bidders including Asian and Middle Eastern sovereign wealth funds and the state-owned Saudi Agricultural and Livestock Investment.

Glencore has an option to sell up to 20 per cent more in the business and it and CPPIB can call for an initial public offering after eight years from the deal closing, expected to be in the second half of this year.

The deal, which is subject to regulatory approvals, values Glencore's entire agricultural products business at US$6.25 billion.

It also recognises US$600 million in debt and US$3 billion in working capital, which Glencore said it "intends to finance with short-term debt on closing".

The deal is only the latest in a long line of shifts Glencore has announced in recent months to cut back its debt load, which at the end of last year stood at nearly US$26 billion, including scrapping its dividend, suspending production at a number of mines as well as selling off assets.

At arm's length from the Canadian government, CPPIB invests the funds not needed by the Canada Pension Plan (CPP) to pay current benefits to 19 million pension contributors, placing the funds in equities, real estate, infrastructure and fixed income instruments. At the end of last year, the CPP Fund totalled nearly US$283 billion.

When the deal closes, Glencore Agri will continue to be run by its current chief Chris Mahoney and will be governed by its own board of directors, including two appointed by CPPIB and two appointed by Glencore.

BLOOMBERG, AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on April 07, 2016, with the headline 'Glencore sells agriculture unit stake to Canada pension fund for $3.4b'. Print Edition | Subscribe