Glencore seeks to cut debt amid commodities shock
Swiss mining giant Glencore, hit by collapsing commodities prices, announced on Monday drastic moves to cut its $30 billion debt by about a third, as the slowdown in China wrought further havoc across markets.
Glencore, which has lost more than 50 percent of its market value this year, said it planned to raise $2.5 billion (2.2 billion euros) in share sales and suspended dividend payments until further notice.
The moves were aimed at cutting about $10.2 billion in debt by the end of next year.
Glencore took the further step of suspending production at massive mines in Zambia and the Democratic Republic of Congo, as the company reels from what it has described as the worst commodities market since the financial crash of 2008-2009.
A slowdown in China, the world's top commodities consumer, has reverberated around the globe, with major producers, including Brazil and Canada, falling into recession.
Concerns over prolonged stalled Chinese growth have slashed iron ore prices by roughly a half, as coal, copper and other commodities have fallen by 20-40 percent.
In a joint statement, Glencore's chief executive Ivan Glasenberg and chief financial officer Steven Kalmin sought to underscore the company's "strong liquidity" and other solid indicators, insisting they "remain very positive on the long-term outlook" of the business.
But, they said, the need to stabilise the company's balance sheet became necessary with stakeholders expressing concern "around the sustainability of our leverage."
Morgan Stanley and Citigroup will underwrite 78 percent of the new shares, and senior management and board members will take the remaining 22 percent, the company said.
- Positive reaction? -
Glencore last week saw its largest decline on the London stock exchange since it went public in 2011, but shares surged by 12 percent on the announcement, and finished the day up 7.02 percent to 131.80 pence.
Analysts offered cautious praise for the moves.
"It's a reasonably aggressive debt reduction," Michael Bush, head of credit research at National Australia Bank Ltd., told the Bloomberg news agency by phone from Melbourne.
"Maybe they haven't done quite enough to remove the negative outlook, but it certainly does reduce the pressure on their rating," he added, referring to Standard & Poor's cutting Glencore's outlook to negative from stable last week.
The 18-month suspensions at the company's copper mines in Katanga, DR Congo, and Mopani, Zambia, will remove about 400,000 tonnes of copper cathode from the market, Glencore said.
While the announcement had already sparked an uptick in copper prices, fears were mounting in Zambia over cutbacks.
"The mines are going through a rough patch. We do not know where this will take us but it has consequences like job losses," said Nkole Chishimba, president of the Mine Workers' Union of Zambia (MUZ) with a membership of over 4,500.
Chishimba said that before suspending production, Glencore should engage the unions so that together they could find an amicable solution to the problems facing the mines.
"Such a decision requires all of us to open a dialogue and see how best we could move forward, as a union we are always worried about the jobs of our members," he said.
The temporary shutdown of the two African operations followed an impairment of its recently acquired oil operation in Chad, a move the company said was sparked by plunging crude prices.
Analysts have said that the slump in commodities prices could last for years, as the rebalancing of China's economy will likely be a prolonged effort and there is no guarantee that its thirst for commodities will recover to previous heights.
But some believe the slide has already gone too far and that a partial rebound is likely.
"As fears about Chinese economic growth are gently massaged out of the markets by the cleverly bullish rhetoric of some very powerful names in business and politics, bargain hunting traders and investors might well be eyeing up some very reasonably priced stocks," said Augustin Eden, analyst with Accendo Markets, noting the high interest in Glencore shares on Monday.
© 2015 AFP