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Glencore Considers Selling Down its Agricultural Unit to Reduce Debt

Glencore Plc is examining the possibility of selling down its agricultural unit as part of its plan to reduce its $30 billion debt load by $10 billion.

Noting that there has been increased interest in food commodities from Japanese and Chinese sovereign wealth funds, Glencore Chief Financial Officer, Steven Kalmin told Bloomberg News that the move could entail taking on investors in its agricultural infrastructure assets including its ports, or the sale of a minority stake in the entire agricultural unit. In July, Japan’s Mitsubishi Corp. announced the acquisition of a 20% stake in Singapore-listed commodity trader, Olam International Ltd. through two deals worth US$1.1 billion, and and last year COFCO Corp., China’s largest food company, acquired controlling interests in both Noble Group and Nidera BV in deals worth US$3.5 billion.

News of the new strategic plan comes just months after Glencore stated it was seeking to expand its agricultural unit after its landmark US$4.6 billion purchase of Canadian grain trader, Viterra Inc. in 2012. Viterra, itself announced only weeks ago the C$190 million acquisition of eastern Canada’s largest oilseed processing plant from Felda Global Ventures.

Glencore’s adjusted earnings from the sale of agricultural products before interest, tax, depreciation, and amortization fell by 46% in the first half of 2015 compared to a year earlier due to bumper crops and reduced volatility, and last week, its shares posted the largest weekly decline in London since its listing in 2011.

In response, the group said it will sell $2.5 billion in new equities and assets valued at $2 billion, and will also suspend dividend payments in an effort to reduce debt by $10.2 billion.

Switzerland-based Glencore is one of the world’s two biggest wheat traders, handling 18% of the world’s seaborne trade, and is one of the top three agricultural exporters in Russia, Canada, Australia, and the EU. The group is vying for a position among the world’s biggest ‘ABCD’ commodity traders – Archer Daniels Midland Co., Bunge Ltd, Cargill Inc., and Louis Dreyfus Commodities BV.

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