TIDMGLEN
RNS Number : 2058Y
Glencore PLC
07 September 2015
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN ARE NOT
FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY,
IN OR INTO THE UNITED STATES, AUSTRALIA, JAPAN, JERSEY, SOUTH
AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.
THIS ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES IN THE UNITED
STATES, CANADA, SOUTH AFRICA, AUSTRALIA, JAPAN, JERSEY OR ANY
JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.
Baar, Switzerland
7 September, 2015
Update on Glencore's plans to reduce net debt and adapt the
business to the current commodity landscape
Glencore plc (the "Company") today announces a fully committed
proposed equity capital raising of up to US$2.5 billion alongside
additional capital preservation / debt reduction measures which,
taken together, have an aggregate value of up to US$10.2 billion,
and certain other portfolio optimisation and cost reduction
actions, with the objective of reducing net debt to the low US$20s
billion by the end of 2016.
Highlights:
-- A proposed equity issuance of up to US$2.5 billion to reduce
indebtedness and increase financial strength;
o 78 per cent. of the proposed equity issuance underwritten by
Citi and Morgan Stanley; and
o commitments from Glencore senior management (including CEO,
CFO and several Board members) to take up the remaining 22 per
cent. of the proposed equity issuance.
o More details of the proposed equity issuance will be provided
in due course.
-- Additional measures with a value of up to US$7.7 billion to
be implemented between now and the end of 2016, including:
o approximately US$1.6 billion to be saved from the suspension
of the 2015 final dividend, intended to do so in the current
commodity environment;
o approximately US$800 million to be saved from the suspension
of the 2016 interim dividend, intended to do so in the current
commodity environment;
o approximately US$1.5 billion to be generated from further
reduction in working capital;
o approximately US$2.0 billion to be raised from the sale of
assets, including, but not limited to, proposed precious metals
streaming transaction(s) and the minority participation of 3(rd)
party strategic investors in certain of Glencore's agriculture
assets, including infrastructure;
o US$500 million to US$800 million to be generated from a
reduction in long-term loans and advances made by Glencore (c.US$4
billion at 30 June 2015); and
o US$500 million to $1.0 billion to be saved from an additional
reduction in industrial capital expenditure to the end of 2016.
-- Ongoing focus on portfolio optimisation and reduction of operating expenditures:
o operations at Katanga and Mopani are under review and in the
process of suspending certain African production until the
completion of the remaining cost-transforming projects which are on
schedule to be completed by the first half of 2017. An 18 month
suspension will remove approximately 400,000 tonnes of copper
cathode from the market.
o This review is detailed in a separate RNS which was released
today.
Ivan Glasenberg, Chief Executive Officer, and Steven Kalmin,
Chief Financial Officer, made the following statement:
"Notwithstanding our strong liquidity, positive operational free
cashflow generation, lack of debt covenants, modest near-term
maturities and the recent affirmation of our credit ratings, recent
stakeholder engagement in response to market speculation around the
sustainability of our leverage, highlights the desire to strengthen
and protect our balance sheet amid the current market
uncertainty.
The measures we have announced today do not affect our core
business activities and overall franchise value and have been
designed to sensibly accelerate the deleveraging of our balance
sheet, maximise future cash flow generation in the current weak
commodity price environment and substantially improve our financial
and credit metrics, stability and strength, in the event of a
prolonged weaker pricing environment.
We remain very positive on the long-term outlook for our
business and this is reinforced by senior management's commitment
to take up 22 per cent. of the proposed equity issuance. Copper and
zinc are both supply-challenged and an essential ingredient of
future global growth. In seaborne thermal coal, a capex drought and
low prices have helped rebalance the market. We are confident that
thermal coal's position and availability as the lowest cost fuel
source for many large economies will underpin its key role in the
global energy mix for many years to come.
We have today an extensive portfolio of long-life, low-cost
industrial assets, benefitting from the unique capabilities of our
marketing business. We reiterate our 2015 full year marketing EBIT
guidance of US$2.5 billion to US$2.6 billion and remain confident
of our long-term guidance range of US$2.7 billion to US$3.7
billion."
Glencore is hosting an investor update call to discuss these
debt reduction plans at 08:30AM London time, 7(th) September 2015.
Dial in details are as follows, and a replay facility will be
available for a period of 7 days from the date of this
announcement:
Confirmation code: 5116451
Local - Switzerland: +41(0)44 580 7216
National free phone - Switzerland: 0800 345 602
Local - United Kingdom: +44(0)20 3427 1902
National free phone - United
Kingdom: 0800 279 5004
Local - United States of America: +1646 254 3362
National free phone - United
States of America: 1877 280 2296
Local - Hong Kong: +8523009 5112
National free phone - Hong Kong: 800 905 743
Local - South Africa: +2711 019 7015
National free phone - South
Africa: 0800 984 126
Local - Sydney, Australia: +61(0)2 9253 5962
National free phone - Australia: 1800 027 830
1. BACKGROUND
On 19(th) August 2015, Glencore announced its 2015 interim
results in which a number of significant actions were outlined to
protect Glencore's balance sheet in the current challenging
commodity environment. These included:
-- a reduction in industrial capital expenditure for the 2015
financial year to US$6 billion, down from prior guidance range of
US$6.5 billion to US$6.8 billion;
-- a reduction in industrial capital expenditure for the 2016
financial year to a maximum of US$5 billion, down from prior
guidance of US$6.6 billion;
-- a reduction in costs of approximately US$400 million in the 6
month period to 30th June 2015, with a further US$400 million
targeted during the next 12 months; and
-- a net debt target of US$27 billion by the end of 2016.
In spite of these measures, and notwithstanding the Group's
strong liquidity position, modest near-term debt maturities and
positive operational free cashflow generation, the Board has
determined that, in light of the current market volatility and
speculation it is prudent, and in all shareholders' interests, to
implement the additional measures outlined in this announcement as
soon as possible.
2. DETAILS OF THE PROPOSED EQUITY ISSUANCE
In accordance with the principles outlined above, Glencore is
announcing that it intends to raise up to US$2.5 billion by way of
a proposed equity issuance to reduce indebtedness and increase
financial strength.
In connection with the proposed equity issuance, Glencore has
received commitments from Glencore senior management in respect of
22 per cent. of the proposed equity issuance, and has entered into
a standby equity underwriting agreement with Citi and Morgan
Stanley in respect of 78 per cent. of the proposed equity
issuance.
The Company will, in due course, announce further details of the
proposed equity issuance, including as to its terms, following
consultation with shareholders.
3. DETAILS OF THE PROPOSED ADDITIONAL DEBT REDUCTION MEASURES
3.1 Against current commodity backdrop, suspension of dividend
payments until further notice, starting with the 2015 final
dividend
Glencore's balance sheet remains strong and the Group's
committed lines of credit are assured. The Board's confidence in
the fundamentally positive prospects of Glencore, its quality of
assets and marketing business, remains unchanged.
However, although the Group reported meaningful profits in the
first half of 2015, the cash flows of its industrial assets are
geared to commodity prices. In light of the other actions being
announced today to strengthen and protect the balance sheet amid
the current market uncertainty, the Board has determined that it is
right that a conservative stance be taken. As a result, and despite
Glencore's sound financial position, a decision has been taken to
suspend the dividend until further notice, beginning with the final
dividend for 2015. The previously announced interim dividend for
2015 of US$0.06 per share will be paid.
This measure will save approximately US$2.4 billion between now
and the end of 2016, comprising approximately US$1.6 billion in
respect of the final dividend for 2015, and approximately US$800
million in respect of the interim dividend for 2016.
The Board will review this matter on a regular basis and will
resume dividend payments as soon as conditions allow.
3.2 Additional reduction of working capital
In its 2015 interim results, Glencore announced that the unique
flexibility of the Group's capital structure had enabled a working
capital release (from sources other than readily marketable
inventories ("RMI")) of more than $3.2 billion during the 6 months
to 30(th) June 2015, reflecting lower commodity prices and active
working capital management, along with a $1.5 billion reduction in
RMI.
In addition, Glencore noted that scope existed for potential
further reductions in net working capital in the future.
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