* Unit valued close to $10 bln including debt, inventories
* Sale part of Glencore's drive to reduce debt
* Shares end lower after initial 2.2 pct rise
(Adds Breakingviews link, updates share prices)
By Dmitry Zhdannikov
LONDON, April 6 (Reuters) - Commodity miner and trader
Glencore GLEN.L has agreed to sell 40 percent of its
agricultural unit to Canada's state pension fund for $2.5
billion, the company's latest step to cut debt and soothe
investor concerns about the impact of weak commodity prices.
The sale values the agricultural unit as a whole at close to
the initially expected $10 billion, including $0.6 billion in
debt and $2.5 billion in inventories, and comes after Glencore
said last month it was stepping up its debt reduction plan by
unloading more assets.
The group said it aimed to cut net debt to between $17
billion and $18 billion by the end of 2016, $1 billion more than
previously planned and down from a peak of $30 billion last
year.
The purchase is by the pension fund's investment unit,
Canada Pension Plan Investment Board (CPPIB), which seeks
long-term low-risk investments.
"Glencore Agri complements our existing portfolio of
agriculture assets, bringing global exposure, scale and
diversification," CPPIB's global head of private investments,
Mark Jenkins, said in a statement
Glencore's stock had collapsed to below 70 pence at the end
of last year, a fraction of its peak of 556 pence following its
2011 flotation, due to investor worries over its heavy debts
coupled with slumping copper and coal prices.
INVESTMENT GRADE
The stock has, however, doubled in value since then, after
the company took steps to cut debt and protect its investment-
grade credit rating, by raising money via a share issue,
reducing inventories, suspending dividends and selling assets.
"Management continue to be proactive and delivering on the
stated objective of reducing debt," said Charl Malan, portfolio
manager at investor and Glencore shareholder Van Eck Associates.
Malan said that he expects Glencore to continue to drive
debt lower via asset sales, metal streaming deals and improved
operating efficiencies.
Glencore expects the agriculture deal to complete in the
second half of 2016. The business comprises more than 200
storage facilities globally, 31 processing facilities and 23
ports, allowing Glencore to trade grains, oilseeds, rice, sugar
and cotton.
It generated core earnings of $524 million in 2015 and had
gross assets of more than $10 billion.
Under the agreement, Glencore has the right to sell up to a
further 20 percent stake. Glencore and CPPIB may also call for
an initial public offering of Glencore Agri after eight years
from the date of completion, the companies said.
Glencore Agri would be run by current chief Chris Mahoney
and a board to which CPPIB and Glencore would each appoint two
directors.
Shares of Glencore rose as much as 2.2 percent on the
announcement of the disposal, before retreating to close down
about 1.2 percent. The FTSE was up about 1.2 percent.
"The more assets Glencore disposes of, the more shareholders
will begin to weigh up the benefits to the balance sheet versus
the negatives of lost future revenue," said Jasper Lawler,
market analyst at CMC Markets.
Barclays (LON:BARC), Citi and Credit Suisse (SIX:CSGN) were Glencore's joint
financial advisers and Linklaters LLP provided legal advice.
Deutsche Bank (DE:DBKGn) was sole financial advisor to CPPIB.
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BREAKINGVIEWS-Canada buys its way into Glencore's sweet spot
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