Debt-heavy Glencore to sell down agri interests

07 Apr, 2016 12:03 PM
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Glencore Agri trades cereals, oilseeds, rice, sugar and cotton and has 30,000 hectares its own Australian farming operations, as well as the Viterra ports and regional logistics business, and container packing facilities in Victoria, SA and NSW.
Glencore Agri trades cereals, oilseeds, rice, sugar and cotton and has 30,000 hectares its own Australian farming operations, as well as the Viterra ports and regional logistics business, and container packing facilities in Victoria, SA and NSW.

DEBT-heavy mining and commodity trading giant Glencore is selling part of its agricultural business to the Canada Pension Plan Investment Board (CPPID) for $US2.5 billion and may offload another 20 per cent.

Further down the track the deal also allows for a potential public listing of Glencore Agri's global network of vertically-integrated interests, which include about 200 storage facilities, 31 processing sites and 23 ports.

Plans to offload the 40 pc stake in the $US6.25b agribusiness were triggered last September as international concerns about the size of Glencore's $US30b debt escalated and its share price dived.

While its agricultural interests, including the South Australian-based Viterra storage, logistics and ports business, have performed steadily, the Swiss-based company's big mining and mineral trading operations are under pressure from poor commodity prices.

Among its assets dotted across most states in Australia are coal mines previously owned by Xstrata which it acquired 2013, adding to significantly its big debt.

The company's profits for 2015 fell almost a third as a result of the drop in hard and soft commodity prices.

Glencore trades wheat, barley, sorghum, oilseeds, rice, sugar and cotton and has 30,000 hectares of its own farming operations in southern NSW and leased properties in the SA Mallee.

It has container packing facilities in Victoria, SA and NSW and is a partner in the new Newcastle Agri Terminal port site.

Outside Australia - home to its biggest agricultural portfolio - Glencore has diverse agribusiness interests in Canada, South America and Eastern Europe.

Glencore Agri reported earnings before interest and tax of $US524m last year.

Share market analysts at Investec sent alarm bells ringing last year saying Glencore's equity value could be "eliminated" by the mineral price crash, although the company has insisted it has always been operationally and financially robust.

It flagged plans to generate up to $US5b from asset sales to ease its debt load this year, plus an efficiency savings strategy to shave a further $US400m from its costs.

Glencore chief executive, Ivan Glasenberg, said Toronto-based CPPIB had a proven track record as investors in the agriculture and infrastructure sector and shared Glencore's vision for the future growth of the business "through value-creating organic and inorganic growth opportunities".

"We welcome them aboard and look forward to continuing our good relationship as we work together," Mr Glasenberg said.

The transaction values the full Glencore Agri's long-term debts at $US600m and readily marketable inventories at $US2.5b.

The deal, subject to regulatory approvals, is expected to be finalised in the second half of 2016, with CPPIB taking two directors on the board of Glencore Agri.

Glencore and CPPIB have also agreed to an initial four year lock-up period subject to a carve-out for Glencore to sell up to a further 20pc stake.

Either company may also call for an initial public offering of Glencore Agri after eight years of the partnership being formed.

Glencore’s regional director, Australasia, David Mattiske, was “very pleased’ to welcome CPPIB as a strategic partner in the Agri operation.

“CPPIB and Glencore both recognise the significant opportunities within global agriculture and they share our vision for future growth of the business for the benefit of all stakeholders, including growers and customers,” he said.

There would be no change to the management team or how the regional businesses operate.

Glencore Agri chief executive officer, Chris Mahoney, said investment potential created by the partnership would make the business well-placed to take advantage of significant opportunities emerging in the farm commodities sector.

CPPIB's global head of private investments at CPPIB, Mark Jenkins, agreed saying the agricultural asset class was an "excellent fit" for a long-term investor like CPPIB.

"We are excited about the opportunity to acquire a significant stake in a leading agricultural business," he said.

"Glencore Agri complements our existing agriculture assets, bringing global exposure, scale and diversification.”

Glencore's companies employ around 160,000 people, including contractors – about 18,000 of which are in Australia.

CPPIB has about $282.6b in invested funds on behalf of 19m million contributors and beneficiaries including an agriculture investment program focused on farmland in Canada, the US, Australia, New Zealand and Brazil, and a partnership position in Sydney's proposed NorthConnex motorway.

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FarmOnline
Andrew Marshall

Andrew Marshall

is the national agribusiness writer for Fairfax Agricultural Media
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READER COMMENTS

Jock Munro
8/04/2016 6:30:55 AM

SA grain growers had a very successful grower owned co op- now it is a play thing of foreign entities.
Deregul8
8/04/2016 9:08:48 AM

You don't hear any SA boys whinging about it. they got top dollar and have been using that equity to buy more land, lime more, spend more on weed control, earthworks, building infrastructure, basically increasing productive capacity. Good on the SA boys, wise move! And of course their land values are stable because farmers are very strong financially. This would be in comparison to say Rankin Springs where impoverished farmers cannot sell land despite many needing too.
Jock Munro
8/04/2016 12:01:23 PM

I am hearing that SA growers are not so happy about having hocked their co op deregular. Could you please supply details on the Rankin's Springs situation- I am not familiar with it. It looks as if you have been supplied with some false information .
GFA
8/04/2016 4:10:26 PM

This is an example of the folly of expecting international traders to be there when you need them. The bigger they are the harder they fall.
LTF
8/04/2016 5:43:39 PM

Having lost control of their supply chain leaves growers much more vulnerable to the market place and while good times mask the impact of loss of control, any downturns can have disastrous consequences. There is no way of telling what facilities may disappear or what restrictions may appear as changes take place beyond the farm gate.

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