Canadian Pension Fund to Acquire 40% Stake in Agriculture Unit of Glencore For $2.5 Billion

April 7
7:53 AM 2016

Glencore PLC, the Switzerland based multinational commodity trading and mining company is near to a deal for selling a stake in its agricultural business. Canada Pension Plan Investment Board (CPPIB), the largest pension fund in Canada has agreed to pay $2.5 billion against a minority stake in Glencore's agriculture unit. The fund will help the Swiss commodity giant paring a debt burden of around $26 billion.  

CPPIB is possibly going to own 40% stake in the Glencore unit which handles wheat, corn, barley, bio-fuels, cotton and sugar. A Bloomberg report suggests that the possible deal accounts the entire business at $6.25 billion which is much lower compared to a Citigroup Inc. valuation for $10.5 billion conducted in September last year.

The dealt price appears at the lower end of the predicted valuation range, but doesn't represent a disappointment. Glencore considers cash through the door as the key factor, cites Ben Davis, an analyst from Liberum Capital Ltd.

However, there is no guarantee that the deal will finally take place. The expected deal aims raising cash from selling assets in a bid to reduce debt burden. Glencore's stock has been witnessed to tumble following a sell off in commodities.

Prices of Glencore share have dropped 5.3% on Tuesday to $2.01 (141.85 pence) in London Stock Exchange. The latest plunge accounts for a total fall of 50% in share prices from one-year earlier, according to a report published in The Wall Street Journal.

The deal is expected to ease pressure from Glencore originated from its acquisition of Canadian grain handler Viterra Inc. The Swiss commodity giant has agreed the $6 billion deal considering growth of China and other emerging economies to fuel food demand.

However, the prediction hasn't come true due to a slower economic growth in China and Brazil's tumbling currency. Potash Corp., a fertilizer producer from Saskatchewan, Canada has started laying off at one of its mines since January to tackle the oversupplied market, reports MarketWatch.

Glencore represents as the world's third largest diversified mining company with respect by market value. It produces a wide range of commodities including coal, nickel, copper and oil. The agriculture business unit of Glencore focuses on processing, handling and marketing of agricultural produces using its storage and other facilities.

Glencore has been witnessing huge debt burden following a mistaken assumption in its previous acquisition of Canadian grain handler Viterra Inc. Global economic slowdown has appeared as an obstacle in getting benefit from the Viterra deal which has even turned to a burden for Glencore. To cope up with the situation, Glencore is nearer to a deal with CPPIB for selling 40% stake in its agriculture unit.

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