Glasenberg Gets Ready to Go Farming With Bigger M&A War Chest

  • Glencore sets sights on M&A by strengthening balance sheet
  • Debt levels have fallen more than 60% since mid-2014

Bloomberg’s Stuart Wallace discusses Glencore’s performance and what it means to the commodities community. He speaks with Francine Lacqua and Tom Keene on 'Bloomberg Surveillance.' (Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.) (Source: Bloomberg) (Corrects reporter's name in description.)

Despite all the upheaval at Glencore Plc in the past two years, Ivan Glasenberg’s appetite for dealmaking hasn’t changed.

The 60-year-old, pugnacious South African executive has emerged from the commodities crisis with a leaner company, unburdened by lots of debt, and ready to find the next big growth opportunity. While other mining giants are dishing out hefty dividends, a standard practice for a mature industry, Glasenberg is branching out to farming.

"We are always pragmatic and have patience, but we do want to grow the agricultural company," he said in an interview after the company reported earnings that matched expectations.

Glasenberg has a long reputation as a major dealmaker in mining, tying together Glencore with Xstrata Ltd. in 2013 in a $43 billion transaction that transformed the company from a trader to a miner with assets all over the world. While the agriculture side of the business is significantly smaller, the company is a major presence in grain markets outside the U.S.

On Thursday, the company opted not to increase its dividend plans for this year, instead using the extra cash to pay down debt and strengthen the balance sheet.

“We continue to see Glencore’s potential to drive value through future M&A and marketing volume additions as attractive in this current low-growth mining environment,” Tyler Broda, an analyst at RBC Capital Markets in London, wrote in an emailed report.

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Glencore does plan to increase dividends next year, promising a minimum of $2.5 billion if commodities prices remain at current levels.

Glencore is "balancing dividends and M&A," Christopher LaFemina, mining analyst at Jefferies LLC in New York, said in a note to clients. "Management is focused on growth and potential opportunistic M&A.”

Glencore cut borrowings to $13.9 billion by the end of June, down more than 60 percent from a peak in mid-2014 of $37.6 billion and below a self-imposed cap of $16 billion.

The company cut its preferred leverage ratio to 1.07, well below its target of 2, suggesting it can pursue acquisitions without stretching its balance sheet.

Steve Kalmin, the finance chief, said the balance sheet was “consistent” with a credit rating a notch higher than currently. S&P Global Ratings has Glencore on positive outlook with a BBB rating.

The focus on M&A comes as commodities markets recover on signs of stronger Chinese economic growth and supply cutbacks.

"I’m still pretty bullish on China," Glasenberg said on Thursday. "Economic growth on a percentage basis is lower than a decade ago, but the size of the country’s economic base is today much larger."

Glencore’s adjusted earnings before interest, taxes, depreciation and amortization rose to $6.74 billion in the first half, up 68 percent from a year ago.

Glencore painted a bullish outlook for its trading business, with oil volumes significantly higher. The business reported Ebit of $1.37 billion, the second-best for a January-to-June period since the company went public in 2011. It reiterated full-year guidance for the unit of $2.4 billion to $2.7 billion.

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

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