UPDATED: April 6, 2016 1037 CST – The Canada Pension Plan has increased its interest in the agriculture sector.
The pension plan’s investment board announced earlier today that it will pay US$2.5 billion for a 40 percent stake in Glencore PLC’s global agricultural assets.
The deal is expected to close in the second half of 2016 and is subject to customary closing conditions, including regulatory approvals, according to an April 6 new release issued by the Canada Pension Plan Investment Board (CPPIB).
Glencore’s agricultural products unit, also known as Glencore Agri, owns agricultural assets in Canada and around the world.
Those assets include Viterra ports and grain handling facilities in Canada and Australia.
Glencore acquired Viterra in 2012 for $6.1 billion.
“As an asset class, agriculture is an excellent fit for a long-term investor like CPPIB, and we are excited about the opportunity to acquire a significant stake in Glencore Agri, a leading agricultural business,” said Mark Jenkins, CPPIB’s senior managing director of private investments.
“Glencore Agri complements our existing portfolio of agriculture assets, bringing global exposure, scale and diversification,” Jenkins added.
“In addition, Glencore Agri’s experienced management team has a proven track record of growth, and combined with a successful business model, we see this as a compelling opportunity that aligns with CPPIB’s long-term investment horizon.”
The deal with CPPIB is part of an ongoing effort at Glencore to reduce the company’s debt load in the face of declining commodity prices and soft global markets.
Last September, the company said it would consider selling some of its Canadian grain handling assets in an effort to reduce company debt and maintain its credit rating.
In a conference call with investors, Glencore chief executive officer Ivan Glasenberg said the company is considering the sale of various agricultural assets in Canada and is also entertaining offers to sell a minority stake in Glencore’s global agriculture portfolio.
The company’s chief financial officer, Steven Kalmin, said at the time that Viterra’s assets would be a key piece in efforts to find an equity partner.
“If we’re talking about (agriculture) infrastructure … it would be the former Viterra assets that would be the most sought after,” Kalmin said.
Viterra is one of the largest grain handlers in Canada.
Total storage capacity at its primary elevators in Western Canada is more the 1.8 million tonnes.
Viterra officials have so far to comment on the CPPIB deal.
A report in the Wall Street Journal this morning said both Glencore and CPPIB will retain their ownership stakes in Glencore Agri for a period of four years if the deal goes through.
However, Glencore reserves the right to sell an additional 20 percent of its equity.
The deal is CPPIB’s latest foray into agriculture and is seen as a move that will diversify its agricultural holdings and limit geographic risks.
In addition to Canada and Australia, Glencore controls agricultural assets in Europe and South America.
CPPIB oversees a total portfolio valued at C$282 billion.
Its other agricultural assets include farmland holdings in Canada, the United States, Australia and South America, valued at close to $800 million.
Posted April 5, 2016 – 1217 CST
Glencore said to be pondering minority sale of Viterra to Canada Pension plan
Swiss commodities company Glencore is considering selling a minority stake in its agriculture business to the Canada Pension Plan Investment Board, according to reports from Reuters and the Wall Street Journal.
Reuters says CPPIB would acquire a 40 percent stake in the Glencore’s agricultural business, which includes Viterra’s Canadian and Australian operations.
Glencore recently confirmed its intention to liquidate assets in an effort to solidify its financial position.
Last fall, the company said it would consider selling some of its Canadian grain handling assets to help reduce company debt and maintain its Triple B credit rating.
In a Sept. 7 conference call with investors, Glencore chief executive officer Ivan Glasenberg said the company is considering the sale of various agricultural assets in Canada and is also entertaining offers to sell a minority stake in Glencore’s global agriculture portfolio.
In Canada, the sale of agricultural assets would most likely involve former Viterra facilities, including inland elevators or port terminals, which were acquired by Glencore just a few years ago.
In 2012, Glencore acquired Viterra’s assets — primarily grain handling facilities in Canada and Australia — in a deal valued at $6.1 billion.
Glencore indicated last year that it would like to reduce its overall debt to the low $20 billion range, a reduction of roughly $10 billion below current levels.
To accomplish that, the company announced a series of measures including the suspension of shareholder dividends, a reduction in operating capital levels, a proposed equity issuance worth as much as $2.5 billion and asset sales in its mining and agriculture portfolios.
“If we’re talking about (agriculture) infrastructure … it would be the former Viterra assets that would be the most sought after,” said Glencore chief financial officer Steven Kalmin in late 2015.
Canadian asset sales would be “relatively straightforward” and could be “concluded in the next few months,” he added.
Glencore officials did not say at the time, which Canadian assets would most likely to be involved in a sale, but the company has multiple ports, storage facilities and rail infrastructure assets that have generated considerable interest among pension funds and foreign investors.
“We have hundreds of facilities (in Canada) and opportunities there with good solid flows in very low risk jurisdictions,” Kalmin said recently.
Glasenberg also indicated that the company would consider selling a minority stake in Glencore’s global agriculture portfolio.
“We’ve had a lot of inquiries regarding a minority stake in our ag business,” he said.
“So we’ll look at any opportunities there.”
In Canada, Viterra’s assets include grain export terminals in Vancouver, Prince Rupert, Thunder Bay and Montreal.
The company also operates 70 primary elevators across the West and is Canada’s largest grain handler in terms of primary elevator storage capacity.
Storage capacity at Viterra’s Canadian primary elevators is more the 1.8 million tonnes.
Viterra officials declined to comment on the potential sale.
The Wall Street Journal article cites unnamed sources familiar with negotiations.
The article suggests that a deal could be announced this week.