Glencore plans to slash debt by $10bn and issue $2.5bn in shares

Glencore announced a $10bn package of debt-reduction measures on Monday as the miner and commodities trader tries to reassure investors who have seen their shares in the company tumble this year.

The company said that it would issue up to $2.5bn of new shares, cut dividends, sell assets and look to offload a stake in its agricultural business to a third party.

London-listed Glencore also announced plans to suspend production at its copper operations in the Democratic Republic of Congo and Zambia in a move that it says will take 400,000 tonnes out of the market and potentially provide a boost to metals prices.

The package of measures outlined on Monday will reduce Glencore’s net debt from about $30bn to about $20bn. Shares in the trader jumped sharply on the package of measures, rising 10.8 per cent in early trade before settling back to stand 7 per cent higher at131.7p.

Analysts at Citi said in a research note: “This significantly improves the balance sheet of the company, it comfortably places Glencore in investment-grade territory by rating agencies under most commodity scenarios, and gives the company flexibility to weather any down cycle.”

The miner’s rating outlook was downgraded to negative by Standard & Poor’s last week. Its shares have fallen more than its rivals this year owing to concerns about its debt load. It was originally planning a reduction to $27bn by the end of 2016.

Glencore said the equity issuance would be supported by several members of the senior management team, including chief executive Ivan Glasenberg, who owns 8 per cent of the company.

Glasenberg said that Glencore felt comfortable with its previous plan of reducing debt to $27bn by 2016, outlined alongside last month’s half-year results. But it decided a more aggressive target and package of measures was needed after speaking with investors and other shareholders.

“We wanted to make sure the balance sheet is bullet proof,” he told City analysts on a conference call.

“It may be too much. Time will tell. Let’s see where the market goes. If prices are better than people anticipate we can readdress what we are going to do with dividends going forward.”

In a statement Glasenberg pointed to the group’s strong liquidity, positive operational free cash flow generation, lack of debt covenants, modest near-term maturities and the recent affirmation of its credit ratings.

However, he added: “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.