Fresh from taking a battering as a result of China, which has resulted in S&P downgrading its credit rating, commodities trader Glencore is tapping shareholders for a further $2.5bn (£1.64bn) rights issue.
The business, which floated in May 2011, said it was seeking the money as part of a plan to reduce net debt to “the low $20bn by the end of 2016”.
The issue will be underwritten by Citi and Morgan Stanley (or at least 78 per cent of it will), with the remainder coming from commitments from Glencore senior management, including the chief executive Ivan Glasenberg, chief financial officer Steven Kalmin and several board members.
On top of this the trader is suspending its 2015 and 2016 final dividend, cutting $1.5bn from its current working capital and selling $2bn-worth of assets.
Glencore's share price had risen 10.2 per cent to 135.7p at pixel time. However, since it listed it has tumbled from 530p.
Glasenberg said: “Notwithstanding our strong liquidity, positive operational free cashflow generation, lack of debt covenants, modest near-term maturities and the recent affirmation of our credit ratings, 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.
“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 per cent of the proposed equity issuance. Copper and zinc are both supply-challenged and an essential ingredient of future global growth. In seaborne thermal coal, a capex drought and low prices have helped rebalance the market. We are confident that thermal coal's position and availability as the lowest cost fuel source for many large economies will underpin its key role in the global energy mix for many years to come."