Glencore surges after announcing plan to cut $30bn debt

7th Sep 2015 07:23

(ShareCast News) - Miner Glencore surged after it announced plans for an equity capital raising and a series of debt reduction measures as it looks to cut its $30bn debt pile.The company said it intends to issue up to $2.5bn in new shares, cut its dividend, sell some assets and dispose of its stake in its agricultural business.Glencore said it will continue to focus on portfolio optimisation and the reduction of operating expenditures.The company's operations at Katanga and Mopani are under review and it is 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.Chief executive officer Ivan Glasenberg and chief financial officer Steven Kalmin said: "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% of the proposed equity issuance."Glencore's shares in Hong Kong were suspended from trading ahead of the announcement.Bank of America Merrill Lynch upgraded Glencore to 'neutral' from 'underperform' and lifted the price target to 160p from 150p following the company's announcement of its debt reduction plan."Unlike other management teams in the sector, Glencore's has acknowledged its debt problem and is taking steps to address it," said the bank.It said the plan goes some way to addressing some of its concerns on Glencore's financing, but it still has a question mark over Chinese demand, hence why it hasn't turned more positive on the stock.It added that even after the reduction, Glencore will still be quite highly geared.RBC Capital Markets said the plan demonstrates management's commitment to strengthening and protecting its balance sheet in the current weak commodity price environment, as well as preserving its investment grade credit rating.At 0952 BST, Glencore shares were up 7.3% at 132.15p.