Glencore Sells Coal Rail Unit for $873 Million to Cut Debt

Updated on
  • Genesee & Wyoming purchases GRail system for $A1.14 billion
  • Pacific National, Aurizon were also said to submit offers

Glencore Plc, the world’s biggest commodity trader, sold its coal haulage unit in Australia to U.S. railroad operator Genesee & Wyoming Inc. for A$1.14 billion ($873 million) as part of a broader plan to almost halve its debt.

The sale of the unit known as GRail forms a “significant part” of the debt-reduction program, the Baar, Switzerland-based trader and miner said in a statement Thursday. The sale price exceeds the company’s earlier target of A$1 billion for GRail, the third-biggest coal haulage business in Australia.

Glencore Chief Executive Officer Ivan Glasenberg has sold assets and shares, suspended dividends and reined in spending over the past year as the company sought to weather a downturn in commodities. He pledged to slash Glencore’s debt to as low as $16.5 billion by year-end after last year’s slump sparked investor concerns that borrowings were unsustainable. 

“The sale had been in the pipeline for a while and completion is a positive, forming another part of Glencore’s debt reduction program,” Investec Plc analysts wrote in a note.

The company is the second-best performer this year in the U.K.’s benchmark stock index. The shares have more than doubled as prices for coal and zinc jumped, and investors grew more comfortable with Glencore’s debt position. The stock was little changed by 8:54 a.m. in London.

Total Disposals

The sale to Genesee & Wyoming expands total disposals since the debt-reduction program was announced to $4.7 billion, within the target of $4 billion to $5 billion the company gave investors. It has also sold 49 percent of its agriculture business for about $3.1 billion.

After Glencore “outlined its debt-reduction plan last year, the company has more than delivered on its promises,” Sanford C. Bernstein analyst Paul Gait wrote in a note. It’s “now well on track to meet its net-debt target,” he said.

Genesee & Wyoming will service the majority of Glencore’s 40 million-metric-ton annual coal haulage from the Hunter Valley to the Port of Newcastle via a 20-year contract, according to the statement. Australian rail operators Pacific National and Aurizon also separately bid for GRail, people with knowledge of the matter said.

Glencore was advised by RBC Capital Markets on the deal, which is subject to approval of Australia’s Foreign Investment Review Board.

Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.