Singapore, Mitsui Said Interested in Glencore Agriculture Sale

The Week Investors Feared A Lehman Déjà Vu
  • Glencore looking to sell stake in business to help reduce debt
  • Commodities firm mulls incorporating food unit in Singapore

The sovereign wealth fund of Singapore is among investors that have expressed interest in buying a minority stake in Glencore’s agriculture business, according to two people familiar with the conversations.

Others involved in preliminary negotiations include Japanese trading houses such as Mitsui & Co. and at least one Canadian pension fund, said the same people, who asked not to be identified because the matter is confidential.

Citigroup Inc., one of the banks hired to run the sale alongside Credit Suisse Group AG, said in an analyst note on Tuesday that the whole business could be worth as much as $10.5 billion. Glencore is seeking to sell a minority stake in the unit, which deals in commodities from wheat to cotton, soybeans to sugar.

As part of negotiations with potential buyers, the Swiss-based commodities trader is considering a plan that will carve out its agriculture business as a stand-alone company with its own capital structure, incorporating the unit in Singapore, the same people said. Under the island state’s rules, commodity trading houses can benefit from tax rates as low as 5 percent.

A Glencore spokesman declined to comment as did a spokeswoman for Singapore’s GIC Pte.

A Mitsui spokesman said the company was "aware of Glencore’s plan to sell certain businesses, but we have not come to a decision at the present."

The negotiations come as Glencore fights an equity-market rout that has eroded more than 80 percent of its market value since its 2011 IPO. After plunging nearly 30 percent on Monday, Glencore shares have regained most of their losses and were trading at 91.6 pence on Friday, down 6 percent this week.

GIC, formerly Government of Singapore Investment Corp., had made investments in food commodities in the past, at one point becoming the largest shareholder in Bunge Ltd., the U.S.-based food trader. Mitsui has investments in agriculture in Brazil, Japan and the U.S. Other Japanese traders such as Marubeni Corp. and Mitsubishi Corp. have already spent billions of dollars in the sector.

The sale of the agriculture business is part of a debt-cutting program that Glencore Chief Executive Officer Ivan Glasenberg announced in early September. The plan includes selling $2.5 billion of new stock, asset sales, spending cuts and suspending the dividend. Taken together, the measures aim to reduce debt from $30 billion nearer to $20 billion.

Glencore became a major agriculture player when it bought Canadian grain handler Viterra Inc. for C$6.1 billion ($4.6 billion) in 2012. Nonetheless, it still has no presence in the most important grain market of all: the U.S.

On top of helping to reduce its debt pile, bringing in a group of investors could provide the company’s agricultural unit with the funding to grow further -- something that Glencore would find harder to do alone after the price of key commodities such as coal and copper plunged.

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