Glencore scraps dividend, to sell equity, assets to bring down debt to $10bn

As part of its plans to slash down the debt burden towards $10billion, Swiss commodities giant Glencore has cancelled its final dividend and decided to mobilize $2.5bn funds by selling some part of stock. The Switzerland-based commodities major aims at reducing its debt by $10 by 2016 as against the previous guidance of reduction of net debt to $27bn during the same period. 

The heavy slump in the global commodities market is impacting the Glencore performance and raising concerns among investors. Taking these factors into consideration, Glencore has charted a business strategy to rejig its finances. 

Citigroup In and Morgan Stanley are the underwriters of the 78 percent of the equity sale for Glencore, according to The Baar, a Switzerland-based commodities trader. 

Glencore has also decided to suspend mining operations at two mines in Africa in addition to sell the stakes in precious metals and agriculture land. These all measures are aimed to bring down net debt to $10bn from the level of three times more than it had earlier. Glencore is also reassuring its investors about future performance of the company.

The recent downgrade of credit outlook on Glencore has shaken investor confidence. The downgrade for credit outlook was negative on every product that Glencore makes right from copper, oil, coal to zinc.

Glencore's Chief Executive Glasenberg says the company's balance sheet is in good shape. Agreeing that tough measures required, he said investors were worried about the future fall of commodity prices. We have taken their concerns into consideration, he said. 

Glencore share price tumbled 60 percent this year so far and was trading four percent higher on Monday and was trading 1.15 percent high at GBP133.25 during intraday trading on Tuesday on London bourse.
The trading arm of Glencore buys and sells goods and transports them as well. The activity of trading arm is believed to be insulated from commodity price drop impact. 

Standard &Poor's has recently downgraded credit rating outlook on Glencore to negative from stable. Standard &Poor's attributed lower prices of commodities to the downgrading. Glencore suffered $676million net loss for the first half ended June 2015. 

Glencore's top brass including CEO, CFO and other board directors are committed to take up the 22 percent of equity sale as remaining 78 percent is being underwritten by Citi and Morgan Stanley.

Glencore has taken up a $7.7-bn measure plan and this is being implemented till 2016. The measures include savings of $1.6bn from scrapping the final dividend. Glencore will also save another $800mn from cancelling the interim dividend for 2016. Reduction in working capital will further generate the availability of $1.5bn. It will raise about $2bn from sale of assets.