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CPP fund manger buying 40% of Glencore's global agribusiness for US$2.5-billion

Last Updated Apr 6, 2016 at 1:00 pm EDT

TORONTO – Canada’s largest pension fund is investing US$2.5 billion for an influential ownership stake in Glencore Agri, a global agricultural business that includes major gain-handling activities in the Prairie provinces and Australia.

The deal represents a big step forward for the Canada Pension Plan Investment Board, which is buying 40 per cent of Glencore Agri at a time when low global commodity prices have taken down the valuations of resource companies.

The jewel in Glencore Agri’s crown from CPPIB’s point of view is the Viterra grainhandling business, which expanded globally from its base in Western Canada — particularly into Australia — before Glencore bought it for $6.1 billion in late 2012.

“We have assets in other regions as well but I would say that the vast preponderance of the value is around those two,” says Mark Jenkins, who heads CPPIB’s global private investments.

Glencore Agri currently has operations in Canada, Australia, South America and Europe that employs more than 12,000 people as well as transportation assets for moving a variety of agricultural commodities from growers to markets.

“We think the ag space is something that, through cycles, will provide a lot of value to the fund and our beneficiaries and contributors,” Jenkins says.

CPPIB invests funds not needed by the Canada Pension Plan to pay current benefits. As of Dec. 31, 2015, it had C$282.6 billion of assets under management.

Three years ago, CPPIB set itself a target of investing C$5 billion or more over time into agricultural businesses but, until the Glencore deal, had made slow progress with a total of only about C$800 million invested.

“We focused initially just on land,” Jenkins says. “We own roughly 120,000 acres in the U.S. (48,000 hectares) and a comparable amount in Canada.”

In return for the equivalent of about C$3.27 billion cash, the deal gives CPPIB representation on Glencore Agri’s board of directors, influence over how the business operates and provisions to either buy more of Glencore’s stake or trigger a public offering.

“We do have the right to force an IPO after eight years,” Jenkins says. “But obviously, the intent is for us to be in this for the long term.”

Meanwhile, the deal provides a way for Glencore to reap some cash in the short term while it rides out a slow global economy.

“This is an important day in the evolution of Glencore Agri, and we look forward to working with CPPIB to continue to build the Glencore Agri business over the long term,” Glencore Agri CEO Chris Mahoney said Wednesday in a statement.

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