Glencore (GLEN.L) has deferred its decision to pay its traditional US$0.20 cash distribution (which is usually paid out as a repayment of capital) until it gets a better idea of the potential damage caused by the COVID-19 virus. The decision on paying the cash distributions has been deferred to the third quarter which gives the Glencore management and board more time to decide on an appropriate payout. Considering Glencore has 13.3B shares outstanding, deferring the $0.20 capital payout would keep US$2.6B in cash on the company’s balance sheet to make sure it doesn’t run into any issues.
Glencore is now focusing on maintaining its investment grade credit rating and eyes a net debt of $14-15B (down $2-3B compared to the end of 2019) while it is aiming to bring its debt ratio down to approximately 1. This should enable the company to keep its lenders happy, and considering Glencore has now signed an updated short-term credit agreement for $9.98B at the same commercial terms as the 2019 credit facility, while an existing $4.65B revolving credit facility has been extended to 2025. This will secure Glencore’s financial flexibility during these uncertain times.
Disclosure: The author has a long position in Glencore.