Glencore puts dividend on ice over Covid-19 concern
Company braces itself for ‘risk of material production disruption’ due to pandemic
Glencore, a global miner and trader headed by SA-born billionaire Ivan Glasenberg, has deferred its dividend for the year as it works to shore up its finances ahead of possible disruptions caused by the Covid-19 pandemic.
The JSE-listed company said on Tuesday that its board had deferred its decision on the proposed cash distribution of $0.20 (R3.57) per share in 2020 “to strengthen the group’s overall financial position and reflecting that, although none to date, there exists the risk of material production disruption due to Covid-19”.
Countries globally are implementing drastic measures to arrest the spread of the coronavirus. This includes SA, which embarked on a 21-day lockdown on Friday.
On Thursday last week, Glencore said that its larger operations had not been affected materially, but some of its smaller assets had to restrict or stop operations. In SA it would continue to supply Eskom with coal during the nationwide lockdown, but it had transitioned two coal operations and its SA ferro alloys operations to care and maintenance, said the company.
Glencore said on Tuesday it had also increased, refinanced and extended its revolving credit facilities on the same commercial terms as 2019.
“As in previous years, these committed unsecured facilities contain no financial covenants, no rating triggers, no material adverse-change clauses and no external factor clauses,” it said.
Thishan Govender, equity analyst at Truffle Asset Management, said that Glencore was likely to survive the crisis, but was most at risk of a prolonged downturn in commodity markets, given its exposure to an underperforming commodity basket coupled with higher-cost operations.
“The balance sheet, while in much better shape than [it was] in 2015, still has more debt then its peers, especially if one takes the funding used for their trading business into account in the net debt calculation,” Govender said.
Glencore said it would determine the appropriate level of distribution to shareholders for the 2020 financial year when the board was better placed to consider Covid-19’s updated effects, the economic outlook and the company’s prospects. This was expected alongside the release of its interim results in the third quarter of the year.
Glencore chair Tony Hayward said the group was taking a cautious approach to protect its capital structure amid extreme uncertainty.
“Notwithstanding that Glencore continues to generate material levels of positive free cash in the current environment, the board considers it prudent to defer the distribution decision,” he said.
“We will review the opportunity for a distribution at our August results, when we will have an improved understanding of Covid-19’s impact on our business and its prospects.”