Glencore Renews Deal Hunt Untroubled by Memories of Debt Panic

JOHANNESBURG (Capital Markets in Africa) – Commodities tycoon Ivan Glasenberg is chasing multibillion-dollar deals once again, and that’s fine with debt investors who were fleeing Glencore Plc less than 18 months ago.

Glencore notes sank as low as 56 cents on the euro early last year after a commodity slump stoked concerns about the $30 billion of debt that Chief Executive Officer Glasenberg had amassed building one of the world’s largest raw-materials trader. Now, the bonds are back at around face value and they barely moved after Glencore’s agriculture arm last week expressed interest in a combination with Bunge Ltd., a grains company with a market value of about $12 billion.

The muted reaction to the idea, which Bunge rebuffed, underscores how Glencore management has reassured creditors through a campaign to almost halve debt via asset sales and a halt to dividends as well as fundraising. It also reflects a new structure for the company’s agriculture business, which lets the unit borrow money without adding to the main company’s debtload.

“They have learnt some nasty lessons,” said Mark Wade, the head of industrials research in London at Rogge Global Partners, which manages about $30 billion including Glencore bonds. “There have been very meaningful debt cuts and they’ve won back creditors’ trust.”

Glencore, based in Baar, Switzerland, declined to comment on its debt overhaul. Glasenberg told shareholders last week, that the trader “would like to buy other companies” and that it was looking to expand in agriculture.

The commodity trader has already returned to dealmaking. In December, it teamed up with shareholder Qatar Investment Authority to buy almost 20 percent of Russian oil producer Rosneft PJSC. Glencore only committed 300 million euros ($334 million) into the $11 billion deal, with the rest coming from financing. Intesa Sanpaolo SpA began syndication of a 5.2 billion-euro loan supporting the transaction last week, according to people familiar with the matter. Glencore also agreed to a $960 million Congo mining deal in February.

Debt-Cutting Campaign
The company slashed net debt to $15.5 billion at the end of last year through steps including the sale of mines, future metals output andrailways. The debt-reduction plan, which began in 2015, allowed the company to retain the support of banks and let it hang onto investment-grade credit ratings. It also announced plans to resume dividends in December.

In the crops unit, Glencore raked in $3.1 billion by selling stakes toCanada Pension Plan Investment Board and British Columbia Investment Management Corp. Its stake in Glencore Agriculture Ltd. fell to just over 50 percent following the two transactions.

Glencore Agriculture’s new ownership structure has given the business a freer hand in debt markets as its borrowings no longer have to be consolidated into the parent’s balance sheet. That’s let the venture draw up plans to sell bonds as soon as next year, and given it the capacity to eye acquisitions of companies that operate grain silos, ports and crushing facilities, such as Bunge.

Retaining Links
Still, even if Glencore no longer has to issue or guarantee bonds for the agriculture unit, it hasn’t become completely disentangled. It will derive profits from the venture, and S&P Global Ratings will consider the risk of Glencore having to step in if the venture gets into trouble, said Simon Redmond an analyst at the ratings provider, which ranks the company BBB, the second-lowest investment grade.

“We don’t want to give companies the benefit of an investment in terms of earnings without recognizing there could be an obligation or liability there as well,” he said.

Glencore may also have to inject cash into the agriculture venture to aid any deal because the business is closely held, Barclays Plc analysts Ian Rossouw and Amos Fletcher wrote in a report last week.

The commodity traders’ 750 million euros of March 2025 notes are quoted at about 98 cents, up from 56 cents in January last year, according to data compiled by Bloomberg. The $1.5 billion of May 2023 notes have climbed to above 100 cents from as low as 65 cents. The company’s shares have surged more than fourfold from the 2015 low to 294 pence in London trading.

“Management would be very reluctant to undo all the good work and trust they built during the restructuring,” said Tim Barker, the London-based head of credit at Old Mutual Global Investors, which holds Glencore bonds among its about 29 billion pounds ($37 billion) of assets. “They’ve got the balance sheet on a stable footing and now they’re clearly thinking of growth.”

Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.