JOHANNESBURG • Mining and commodities trading firm Glencore announced yesterday it will suspend dividends, sell assets and raise US$2.5 billion in a new share issue as it aims to cut its debt by a third to US$20 billion (S$28.5 billion) by the end of next year.
Glencore shares rose 11.8 per cent on Britain's top share index after the decision was announced, and the firm was set for its biggest one-day gain ever, having hit an all-time low in the previous session.
Glencore's share price has suffered as prices of copper and coal have slid to more than six-year lows, but brokers welcomed the move.
"This significantly improves the balance sheet of the company (and) it comfortably places Glencore in investment-grade territory by rating agencies under most commodity scenarios," analysts at Citi wrote in a note. "(It) gives the company flexibility to weather any down cycle and is likely to remove the markets' concern on the downside."
Formerly just a commodities trader, Swiss-based Glencore merged with mining company Xstrata in 2013. The trading business was seen as cushioning the combined company against swings in commodity prices, but last month the company reported first-half earnings had slumped 29 per cent.
The company has been under pressure to cut debt - which stood at US$29.6 billion net at the end of June, as prices for its key products, copper and coal, sunk.
Glencore yesterday said 78 per cent of the proposed share issue was underwritten by Citi and Morgan Stanley, while its senior management have committed to take up the remaining 22 per cent.
It said it would not be paying a final dividend for this year, which would save about US$1.6 billion, while around US$800 million would be saved from the suspension of the 2016 interim dividend.
It expects to raise about US$2 billion from the sale of assets and US$500 million to US$1 billion will be saved from further cuts in capital spending to the end of next year. It also expects to reduce working capital by an additional US$1.5 billion by the end of next June.
It is suspending some copper production operations at its Katanga Mining unit in Democratic Republic of Congo and Mopani Copper Mines in Zambia for 18 months, removing 400,000 tonnes of cathode product from the market.
Glencore, in which Singapore's GIC has a stake, is rated BBB by Standard & Poor's, the second-lowest investment grade.
Moody's had reaffirmed its Baa2 ratings on Glencore with a stable outlook but said the company needed to cut its gross debt further to support the rating. REUTERS
