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Johannesburg – Glencore [JSE:GLN], the worst performer on the UK’s benchmark stock index this year, sold $2.5bn of new shares to pay down debt to help protect its credit rating amid a rout in commodities prices.
Glencore sold the stock at 125 pence a share, a 2.4% discount to the closing price on Tuesday, the Baar, Switzerland- based commodities trader and miner said in a statement. Chief executive officer Ivan Glasenberg paid about $210m to buy shares in the sale in order to maintain his 8.4% stake, honouring a commitment that he and other senior managers representing 22% of the company wouldn’t dilute their holdings.
Glasenberg is responding to investor concern that a debt- laden balance sheet can’t withstand the slump in commodity prices. The share sale is part of a wider $10bn debt- reduction program announced last week, which saw the company scrap dividends and plan asset sales to cut its $30bn of borrowings.
The measures will ease balance sheet concerns but they “do not provide longer-term equity investors with any confidence on the equity story for the company,” Rob Clifford, an analyst at Deutsche Bank AG in London, wrote in a report Wednesday. “The key task for the management team in our view is to rebuild the equity story post the significant under-performance, dilution and dividend cut.”
Glencore shares
The shares erased earlier gains of as much as 4.7% in London to trade 0.1% lower at 127.90 pence by 9:18 a.m. local time, valuing the company at about $25.8bn.
The stock touched 118.1 pence on Tuesday, the lowest price since the company’s $10bn initial public offering in 2011. Its Hong Kong-traded shares tumbled 7.6% on Tuesday to close at a record low of HK$14.80. They were suspended Wednesday pending the share-sale announcement.
Moody’s Investors Service cut its outlook to negative on Glencore last week and affirmed the company’s Baa2 debt rating. A week earlier, Standard & Poor’s cut its outlook on Glencore’s BBB level to negative, saying China’s slowing economy will continue to weigh on copper and aluminium prices, which are near six-year lows.
Glencore said in an earlier statement that it would offer stakes to both new and existing investors.
Wednesday’s announcement didn’t disclose whether any new investors took part in the offering.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.
