Tuesday 12 April 2016 by FIIG Research Company updates

Glencore sells stake in agribusiness for USD2.5bn, mulls other potential sales

Glencore has announced the sale of a 40% stake in its agricultural business for USD2.5bn, and further asset sales are being mooted. We continue to remain confident in the company’s ability to achieve its debt reduction target

Glencore recently announced that it has entered into a definitive agreement with Canada Pension Plan Investment Board (CPPIB) to sell a 40% equity interest in Glencore Agricultural Products for USD2.5bn payable in cash upon closing, subject to customary working capital closing adjustments. The transaction is expected to close in the second half of 2016, with the proceeds of the sale to be applied to reducing debt. CPPIB is one of the world’s largest pension funds with assets under management of close to USD300bn.

Glencore’s agribusiness currently has operations in Canada, Australia, South America and Europe that employs more than 12,000 people as well as transportation assets for moving a variety of agricultural commodities from growers to markets. It includes the Viterra grain handling business, which expanded globally from its base in Western Canada, particularly into Australia, before Glencore bought it for USD6.1bn in late 2012.

The transaction values 100% of the equity in Glencore’s agribusiness at USD$6.25bn. Equity analysts were valuing the business at USD8bn however we note the sale was of a minority interest and we expect that purchasing a majority stake in the business would require paying a control premium.

Since we launched the Glencore bond, we have seen some steady improvement in bond prices but we continue to see good value in the bond, given its investment grade credit rating and further progress on asset sales. The AUD bond is currently offered at an indicative capital price of AUD94 which translates to a yield to maturity of 6.48%.

Please contact your FIIG representative for further details on the Glencore bond. Available to wholesale investors only.